The Biden administration’s student loan forgiveness plan is exempt from federal tax.
AP Photo/Seth Wenig
Student loan forgiveness is taxable income in North Carolina, the state’s Department of Revenue confirmed.
The Biden administration’s student loan forgiveness plan is exempt from federal tax.
The debt relief is triggering individual state taxes in North Carolina and Mississippi.
Student loan forgiveness will be considered taxable income in North Carolina, the state’s Department of Revenue said on Wednesday.
Although the Biden administration’s student loan forgiveness plan is exempt from federal tax, the debt relief is still triggering some individual state taxes.
In North Carolina, student loan relief is taxable because the state has not fully adopted a specific Section of the Internal Revenue Code. Congress used the provision — Section 108(f)(5) — to exempt forgiven student loans between 2015 and 2021 from tax as part of the American Rescue Plan Act.
The department said in the press release: “The North Carolina General Assembly did not adopt Section 108(f)(5) of the IRC for purposes of the state income tax. Therefore, student loan forgiveness excluded pursuant to IRC 108(f)(5) is currently considered taxable income in North Carolina.”
North Carolina’s announcement makes it the second state to confirm that the student loan relief will count as taxable income.
On Tuesday, Mississippi’s Department of Revenue confirmed to Bloomberg it is planning to tax residents’ forgiven student loan debt under state income tax.
At least 13 states are not bound to fully uphold the federal tax exemption when it comes to state tax, per the Tax Foundation. But some, including New York and Hawaii, have already moved to ensure residents who qualify for the debt forgiveness aren’t hit with a state tax bill.
Now the Tax Foundation projects three more states, Arkansas, Minnesota, and Wisconsin, may tax student loan forgiveness.
A spokesperson for Wisconsin’s Department of Revenue told Insider that excluding debt forgiveness from tax required statutory change and action on the part of the state legislature.
The spokesperson said: “At this time, this change has yet to be passed by the state legislature.
“We will certainly address this discrepancy with federal law in our upcoming biennial budget request in an effort to ensure Wisconsin taxpayers don’t face penalties and increased taxes for having their loans forgiven.”
Representatives for both Arkansas’ and Minnesota’s Departments of Revenue did not immediately respond to Insider’s request for comment, made outside normal business hours.
Arkansas’ Department of Finance and Administration, however, told Bloomberg it was “reviewing whether debt forgiveness in this scenario, via executive order, is subject to state income tax in Arkansas.”
The department added it would decide on student loan tax in the next few days.
A spokesperson for the Minnesota Department of Revenue told CNBC that during the last session of the state legislature, a provision to align with the American Rescue Plan Act’s tax exemption was not passed.
The spokesperson added: “If the state does not conform to this federal law, then Minnesota taxpayers who have their student debt discharged will have to add back this amount for Minnesota income tax purposes.”