Student Loan Forgiveness

[lojack8969]

Hello.  My student loans have all been forgiven, based on the number of years they have been active (over 25 years)  My loan account is at zero, and I have confirmation that the loan account has been closed.

I also received a student loan refund check, which I am assuming is for overpayment, over the last many years.  What are the tax implications?  Should I be prepared to owe anything when I complete my taxes for 2023?

I know that federal taxes are being waved for any forgiveness amounts.  But what about the refund amount?

[Andrew_W]

Hi lojack8969,

As you've indicated, student loan debt cancellation is generally not taxable through the end of 2025, due to the American Rescue Plan Act. This can vary on the state level however. Some states still tax cancellation of student loan debt as income.

A refund of payments made is generally not considered income, so would not be taxable.

Here's some additional information about student loan forgiveness: https://turbotax.intuit.com/tax-tips/college-and-education/can-debt-forgiveness-cause-a-student-loan... 

[lojack8969]

Thank you Andrew.

I have done some research and it appears that New York is currently not one of the states that is taxing loan forgiveness.  What documents will I need form my Loan Provider (Nelnet) when completing my taxes. Is there any way to find out now if I will owe any taxes on that amount?  I just want to be prepared to pay if that will be required.

[Andrew_W]

Hi @lojack8969,

There is no tax in the scenario you've described, since student loan forgiveness is not taxable through 2025. Your loan servicer may issue form 1099-C, but you would not need to include that as income on your return in this case.

[JK888]

I live in California and my student loans were forgiven in the first round in 2023 of Bidens relief. My loan servicer told me that they will definitely not be issuing 1099cs so I am confused as to whether I have to enter anything in my California tax return. I can't find anything online but supposedly there is a bill AB111 that the governor signed that pertains to this but I am very confused and don't want to owe anything if I do not include my forgiven loan in my California taxes. What do I do? The franchise tax board could not answer any questions about this when I called to ask. 

[JK888]

I live in California and my student loans were forgiven in the first round in 2023 of Bidens relief. My loan servicer told me that they will definitely not be issuing 1099cs so I am confused as to whether I have to enter anything in my California tax return. I can't find anything online but supposedly there is a bill AB111 that the governor signed that pertains to this but I am very confused and don't want to owe anything if I do not include my forgiven loan in my California taxes. What do I do? The franchise tax board could not answer any questions about this when I called to ask. 

[AbrahamT]

What you have to do is ask your loan servicer why they won't be providing any 1099C. You must verify with them if the loan was actually forgiven and the amount of the forgiveness. 

There may be circumstances that even though your loan forgiveness was exempt for federal tax purposes,you may qualify for state-level loan forgiveness programs that offer tax free loan forgiveness. See HERE  under Subcap "Situations that typically won't cause a tax bomb." 

You may to ask your service provider if you possibly qualify under these programs and as such, that is the reason why they are not issuing you the 1099C because you are tax exempt. 

If however, you do not qualify, then you would be taxable  and include it in your State of California taxable income. See HERE   under Subcap "1099-C : Cancellation of Debt

[JK888]

Thank you for your reply.  The loan servicer told me that the reason that they are not providing 1099C's is per Federal Government Order (Biden) because my loan forgiveness was part of the American Rescue Plan and they do not want people entering a 1099C into the Federal Tax Return. They REFUSE to provide me one because of the Order by the President. This is what they told me verbatim. The governor of California signed some kind of bill that is supposed to mirror the federal government but I have exhausted all channels trying to confirm this. I need to know what the California Franchise Tax Board is requiring but NOONE including the Franchise Tax Board (whom I spoke with) can confirm what I am supposed to do on the State Tax Return end of things.

[Emerald09]

My understanding is I wouldn't need to include the forgiven amount on federal tax form but I would for state as I live in Indiana and what I've found it's considered income. Is this correct I would only include it when filing state taxes?

[BrittanyS]

Yes, you are correct.  The IRS is not taxing student loan forgiveness through 2025.  However, Indiana is still taxing a portion of the student loan forgiveness.  Per the Indiana Department of Revenue, "Under current Indiana law, the amount of some discharged student loans that have been forgiven under U.S. Department of Education relief programs is taxable as income."  So, although the income can be excluded from your federal return, it will be included on your state return, depending on the type of forgiveness you received.  See the link below for additional information regarding the types of forgiveness:

• Indiana Student Loan Forgiveness

@Emerald09