DOR: Student Loan Forgiveness

Student Loan Forgiveness email updates

DOR will not provide updates based on legislation until after the governor signs the applicable bill into law and DOR has studied the impact on the agency and taxpayers. You can keep current with proposed legislation on the Indiana General Assembly's website.

Under current Indiana law, the amount of some discharged student loans that have been forgiven under U.S. Department of Education relief programs is taxable as income. Please see the chart below to determine whether the amount of your discharged loan is taxable.

Why is some student loan relief taxable in Indiana?

The IRS excludes federal direct student loan forgiveness from federal income tax due to an exemption in the Internal Revenue Code. Although the computation of Indiana’s adjusted gross income (AGI) begins with federal AGI, Indiana is a static conformity state, meaning that Indiana’s tax code is linked to the Internal Revenue Code (IRC) as of a specific date. For a provision that impacts federal AGI, the effect on Indiana AGI depends on whether the Indiana General Assembly wholly or partially decouples from the federal provision during the legislative session.

When the American Rescue Plan Act (ARPA) expanded IRC section 108(f)(5), excluding student loan discharge under certain circumstances from federal gross income, the Indiana General Assembly passed a law decoupling Indiana from that provision in the IRC, and enacted a state provision requiring Hoosier taxpayers to add back the excluded amount to their Indiana AGI.

In 2022, this provision was clarified retroactively to provide that discharges resulting from total and permanent disability, death, or bankruptcy were not required to be added back. That law, IC 6-3-1-3.5(a)(30), still stands; therefore, federal discharge of some student loans between 2021 and 2025 must be added back to Indiana’s adjusted gross income.

There are a few exceptions to this rule. Please see the table below to determine if your type of student loan relief is taxable in Indiana.

Federal Direct Student Loan Forgiveness	Federal Tax	Indiana Income Tax	County or Local Income Tax
2021–25 Student Loan Forgiveness Not Specified Below	No	Yes	Yes
Student Loan Payments by an Employer	No, but subject to limits	Yes	Yes
Public Service Loan Forgiveness	No	No	No
Teacher Loan Forgiveness	No	No	No
National Health Service Corps Loan Repayment Program	No	No	No
Total & Permanent; 60-month; and terminal disability	No	No	No
Bankruptcy or Insolvency	No	No	No
Death of student (PLUS loans and other federal direct student loans)	No	No	No

Note: Taxability of discharged student loan debt due to borrower defense may vary. ITT students who had their debt discharged do not have to pay federal, state, or state/local income taxes (IRS Rev. Proc. 2020-11). In addition, loans discharged pursuant to the settlement in Sweet v. Cardona will not be required to be added back in determining Indiana adjusted gross income.

How much tax will I need to pay?

The amount tax you will pay on student loan forgiveness depends on several factors including:

if the loan forgiveness is taxable;
the amount forgiven;
state and county income tax rates (see blue box below) for the tax year in which you received forgiveness.

Indiana’s 2023 income tax rate is 3.15%, which means Hoosiers will owe Indiana income tax of:

$315 for $10,000 of student loan forgiveness and
$630 for $20,000 of student loan forgiveness.

Indiana’s individual income tax rate decreases to 3.05% in 2024. In addition, county tax rates are subject to change.

In addition to state income tax, the taxpayer will be responsible for county and local income taxes based on where they lived as of Jan. 1 (of the taxable year). These rates vary. Refer to DOR Departmental Notice #1 or the 2023 Form CT-40 for a county and local tax rate chart.

Taxpayers concerned about not having enough payroll tax withheld to cover a balance due might consider adjusting their W-4 on file with their employer or making an estimated payment during the year in which the debt was forgiven or discharged (for debt forgiven in 2024, choose 31-Dec-2024 as the payment period).

How do I report and pay Indiana income tax taxes on student loan forgiveness?

State and local taxes are paid when filing a 2023 tax return. This tax return is due on April 15, 2024.

Indiana taxpayers should report the amount of taxable debt forgiveness on Schedule 1 of the IT-40 or Schedule B of the IT-40PNR using code 150. If you were not provided a Form 1099-C by your loan servicer, you may use any reasonable method to estimate the amount of loans discharged and subject to tax.

Taxpayers who owe additional tax when filing their state tax return may be able to pay through their tax software at the vendor’s discretion. They can also pay DOR directly using INTIME, DOR’s e-services portal or at a DOR District Office. Refer to DOR’s Payments and Billing page for other methods of payment and information on payment plans.

What if I have questions?

DOR cannot answer questions regarding your student loan account or federal tax matters, nor can we assist you in preparing or filing your tax return. Please refer to irs.gov or a qualified tax professional as needed.

Studentaid.gov is the official site for information on federal student loan repayments and forgiveness. Your student loan servicer may also be able to assist you with student loan account questions.

For questions regarding Indiana taxes or your tax account, contact DOR, including an option to send a secure message to customer service using INTIME. You may also make an appointment to visit any of DOR's 13 district offices.

For assistance preparing or filing your tax return, refer to a qualified professional tax preparer or free tax preparation services in your area. You may be able to file your federal and state tax returns for free using INfreefile.