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15835: 1040 - Student Loan Discharge or Forgiveness


1040 Individual

Are student loans that have been discharged included in gross income?

 

According to the Tax Cuts and Jobs Act, (page 28) for tax years beginning after December 31st 2017, and before January 1st 2026, gross income does not include any amount that is student loan debt that was discharged due to death or permanent disability. 

Per Notice 2022-01, "When all or a portion of a student loan is discharged after December 31, 2020 and before January 1, 2026, an applicable entity is not required to, and should not, file a Form 1099-C information return with the IRS or furnish a payee statement to the borrower under section 6050P as a result of the discharge." For more information, see the Instructions for Lenders and Loan Servicers Regarding Certain Discharged Student Loans.

In addition, the 2022 1040 Instructions (draft) include this information regarding the one-time loan forgiveness: 

"Student loan debt cancelled by the U.S. Department of Education pursuant to the one-time Student Debt Relief Plan announced on August 24, 2022, is not taxable for federal income tax purposes. The Student Debt Relief Plan provides up to $20,000 in debt cancellation to eligible Pell Grant recipients and up to $10,000 in debt cancellation to eligible non–Pell Grant recipients."

  • Note that taxability at the state level may vary by state. You will need to review the state guidelines to see whether or not student loan forgiveness is taxable on the state return. 

To learn more see IRS Topic 431 - Canceled Debt – Is It Taxable or Not?

Other types of discharged indebtedness are typically reported on Form 1099-C. For more information on this form and how to enter it into the software, please see the Related Links below. 


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