The Biden administration’s student-loan forgiveness will be considered taxable income in North Carolina, the state’s Department of Revenue announced on Wednesday.
“As part of the American Rescue Plan, Congress enacted Section 108(f)(5) of the Internal Revenue Code to expand the types of student loan forgiveness that would not be treated as taxable income for purposes of federal income tax,” North Carolina’s Department of Revenue said in a statement.
“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,” the statement added.
North Carolina is the second state to confirm it will be considering student-loan forgiveness as taxable income after Mississippi’s Department of Revenue told Bloomberg News that it’s planning to tax its residents’ forgiven student-loan debt under state income tax.
According to the Tax Foundation, three additional states, Arkansas, Minnesota, and Wisconsin, appear to be planning to tax student-loan forgiveness.
Arkansas’ Department of Finance and Administration told Bloomberg News that it “is currently reviewing whether debt forgiveness in this scenario—via executive order—is subject to state income tax in Arkansas,” and that it would decide within the next few days.
“In Minnesota, a proposal to conform to [the American Rescue Plan’s] student loan forgiveness treatment sponsored by Gov. Tim Walz didn’t advance in the legislative session that ended in May,” Bloomberg News reported.
“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,” Minnesota’s Department of Revenue said. The Legislature is scheduled to come back into session in January 2023.
In Wisconsin, the state’s Department of Revenue said it would address the taxation of student-loan forgiveness in its upcoming biennial budget.
