Student Loan Forgiveness Leaves State Tax Trap for Borrowers (1)

A provision added to the American Rescue Plan makes forgiven student loan debt not taxable at the federal level, but the tax treatment could differ from state to state.

“It’s a massive patchwork of different approaches to state use of federal income definitions,” said Jared Walczak, vice president of state projects at the Tax Foundation.

President Joe Biden will cancel $10,000 in student loan debt for those earning $125,000 or less and up to $20,000 in debt for Pell Grant recipients, the administration announced Wednesday.

While forgiven loans are typically considered taxable income, a provision in the American Rescue ...