- The state Department of Revenue says student loan forgiveness is taxable income in North Carolina.
- The Biden administration’s student loan forgiveness program is exempt from federal taxes.
- Debt relief is triggering individual state taxes in North Carolina and Mississippi.
Student loan forgiveness will be considered taxable income in North Carolina, the North Carolina Department of Revenue said Wednesday.
While the Biden administration’s student loan relief program is exempt from federal taxes, debt relief is triggering some state taxes.
In North Carolina, student loan forgiveness is taxable because the state has not fully adopted certain sections of the Internal Revenue Code. As part of the American Rescue Program Act, Congress used this provision—Section 108(f)(5)—to waive federal tax on student loans forgiven between 2015 and 2021.
“The North Carolina Legislature has not adopted IRC Section 108(f)(5) to collect state income taxes,” the department said in a press release. “As a result, student loan forgiveness is excluded under IRC 108(f). 5) Currently Considered taxable income in North Carolina.”
North Carolina’s announcement makes it the second state to confirm that student loan forgiveness will count toward taxable income.
On Tuesday, the Mississippi Department of Revenue confirmed to Bloomberg that it plans to tax residents’ forgiven student loan debt under state income taxes.
When it comes to state taxes, at least 13 states don’t have to fully support federal tax exemptions, according to the Tax Foundation. But some states, including New York and Hawaii, have moved to ensure residents who qualify for debt relief are not hit by state tax bills.
The Tax Foundation anticipates that three other states, Arkansas, Minnesota and Wisconsin, may tax student loan relief.
A spokesperson for the Wisconsin Department of Revenue told Insider that excluding debt forgiveness from taxes would require statutory changes and action by the state legislature.
“At this time, this change has not been passed by the state legislature,” the spokesman said.
“We will definitely address this discrepancy with federal law in the upcoming biennial budget request to ensure that Wisconsin taxpayers do not face penalties and increased taxes for loan forgiveness.”
A spokesman for the Minnesota Department of Revenue told Insider that at the last meeting of the state legislature, no provisions compliant with the American Rescue Program Act were passed.
“If the state does not comply with this federal law, then Minnesota taxpayers who forgive student debt will have to add this amount back to their Minnesota income tax,” the spokesperson said.
Spokesperson for the Governor of Arkansas. Asa Hutchinson said the state Department of Finance and Administration is currently reviewing whether debt forgiveness is subject to state income tax.
“As a state that does not automatically adopt federal tax policy changes to our state income tax laws, we must determine whether existing state law will consider this taxable income,” they said.
The spokesman added that they expected a decision on the student loan tax in the coming days.
Representatives for the Arkansas Department of Finance and Administration did not immediately respond to an insider request for comment outside normal business hours.
The department told Bloomberg that it is “reviewing, through an executive order, whether debt relief in this situation is subject to Arkansas’ state income tax.”