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.
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. This includes the one-time student loan forgiveness under the Biden-Harris Administration’s Student Debt Relief Plan, even though the plan was not part of the ARPA.
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 One-time Student Loan Forgiveness announced in August 2022||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).
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 2022 income tax rate is 3.23%, which means Hoosiers will owe Indiana income tax of:
- $323 for $10,000 of student loan forgiveness and
- $646 for $20,000 of student loan forgiveness
provided through Biden-Harris Administration’s student relief plan in 2022. Indiana’s individual income tax rate will decrease to 3.15% in 2023. In addition, county tax rates are subject to change.
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 2022, choose 31-Dec-2022 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 2022 tax return. This tax return is due on April 18, 2023.
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. The Indiana Department of Revenue will publish instructions in the 2022–23 IT-40 and IT-PNR tax instruction booklets and communicate information to major tax software developers. Additional directions will be provided here in early-2023.
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?
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.