- Student loan forgiveness won't trigger federal taxes, but some states may recognize the cancellation as income.
- However, there is still time for states to make changes to current policies.
Indiana is the latest to confirm forgiveness will trigger state income taxes, and some borrowers may owe county levies on top of state income tax.
"As this law is clearly defined, there is no need for additional administrative rules," a spokesperson with Indiana's Department of Revenue said. "Any legislative change must come from the General Assembly."
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A provision from the American Rescue Plan of 2021 makes student loan forgiveness federally tax-free through 2025, and state income taxes depend on whether and when there's state conformity with federal tax laws.
Last week, Mississippi's Department of Revenue confirmed with CNBC that student loan forgiveness will be taxable, and the North Carolina Department of Revenue shared the same in a news release.
Of course, with state legislation in flux, it's still possible these tax policies, among others, may change.
In addition to Indiana, Mississippi and North Carolina, state-level taxation also may be possible in Arkansas, California, Minnesota and Wisconsin, according to a preliminary analysis from the Tax Foundation.
The organization initially estimated that 13 states may tax student loan forgiveness and has revised projections with updates.
It now projects seven states — Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin — may tax student loan forgiveness.
Taxing forgiveness isn't likely in Massachusetts, but the state hasn't shared an official determination.
Currently, here's a breakdown of the status in pending states.
The Arkansas Department of Finance and Administration on Friday told CNBC that student loan forgiveness may be taxable. However, it depends on what happens in the state legislature in January, said Scott Hardin, a spokesperson for the Arkansas Department of Finance and Administration.
"It would be inaccurate to report student loan forgiveness will be taxable in Arkansas as we won't be certain until the legislative session is complete," he said.
California may also tax student loan forgiveness, depending on how the Department of Education administers the program, a spokesperson from the state's Franchise Tax Board told CNBC.
Indiana's Department of Revenue has confirmed with CNBC that student loan forgiveness is taxable at the state, and possibly county level.
While the Massachusetts Department of Revenue hasn't made a final determination, state Rep. Steve Owens, a Democrat, said in a tweet that student loan forgiveness won't be taxable.
The Mississippi Department of Revenue has confirmed with CNBC that student loan forgiveness will be taxable at the state level.
Student loan forgiveness is "currently considered taxable income," according to a news release from the North Carolina Department of Revenue. However, the department is monitoring legislation changes from the state's General Assembly.
North Carolina Governor Roy Cooper on Wednesday asked Republican legislators to waive state income taxes on student loans forgiveness.
"Legislative leaders need to find a solution that treats student loan forgiveness the same way they handled the PPP loan forgiveness that many of them received," he said in a statement.
"Republican legislators were quick to help businesses and should now fix this fundamental unfairness for many hardworking people who will get hit hard by this," he said.
With the state tax law conforming before the American Rescue Plan Act, it's possible Wisconsin may tax student loan forgiveness, according to the Tax Foundation.
Tax-free forgiveness will require a statutory change and action from the state legislature, a spokesperson the Wisconsin Department of Revenue told CNBC.
"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," they said.