Your Loans Were Forgiven Tax-Free. Your State Might Disagree.

Whether your state taxes your forgiven student loans depends on which forgiveness you got, because the 2025 federal change rewrote a single provision of the tax code and the state-level divergence is confined to that provision.

If you’ve read that federal student loan forgiveness became taxable again for discharges after December 31, 2025, you already know the federal half of your answer. The state half is a different question.

Here’s the fastest true thing to hold onto: the provision is 26 U.S.C. 108(f)(5), and everything sitting outside it was untouched, federally and in most cases at the state level too. So before you go looking for your state, it’s worth knowing which provision your forgiveness runs through, because the two tracks lead to different questions.

Does your state tax PSLF forgiveness?

Two state revenue departments publish an answer to this question, and both of them say no. Public Service Loan Forgiveness is excluded from federal income under 26 U.S.C. 108(f)(1), the service-based provision, and the 2025 change rewrote 108(f)(5), a different subsection. The answer holds independently of what the federal change did.

The Education Department raises this question itself and then declines to answer it. On its page on whether PSLF forgiveness is taxable, it says: “You won’t be taxed by the federal government, but your state may tax you.”

That’s accurate, and it’s also where most coverage stops. But there’s more structure underneath it than “it depends.”

We covered that split in detail in whether PSLF forgiveness is still tax-free, and it matters at the state level: when states moved away from the federal student loan tax rules in recent years, the provision at issue was 108(f)(5) in both states we looked at. Not 108(f)(1).

Two state revenue departments say so in their own published guidance, and they arrived there by opposite routes.

Wisconsin never adopted the American Rescue Plan Act’s changes to 108(f)(5) at all. Its Department of Revenue nevertheless answers “No” on whether PSLF forgiveness is taxable in Wisconsin, and explains why in guidance stamped December 2, 2025: the amount is “not taxable for federal purposes under sec. 108(f)(1), IRC”, and “Wisconsin follows this federal provision”. The same page gives the same answer, on the same reasoning, for Teacher Loan Forgiveness.

Indiana went the other way: its General Assembly affirmatively decoupled from ARPA’s expansion of 108(f)(5) and wrote an add-back into state law. Its Department of Revenue publishes a table of forgiveness types on a page that carries no as-of date and does not address discharges after December 31, 2025; in that table Public Service Loan Forgiveness is marked “No” for Indiana income tax and “No” for county or local income tax, alongside Teacher Loan Forgiveness, National Health Service Corps repayment, and discharges for death or total and permanent disability.

One state that decoupled and one that never conformed, reaching the same answer on PSLF — because neither one’s 108(f)(5) posture touches 108(f)(1).

The same structural point reaches discharges for death and for total and permanent disability. Wisconsin’s guidance says its tax laws follow section 108(f)(5) “as it existed prior to the changes made by the American Rescue Plan Act”, which is the version that excludes those discharges. Indiana’s table marks total and permanent disability, death, and bankruptcy discharges “No” for Indiana and for county or local income tax. Both readings sit on pages written before the December 31, 2025 change, so both describe the law those pages address rather than a discharge made now.

None of that is tax advice about your return, and neither state’s page claims to be. Indiana’s own guidance says to “refer to irs.gov or a qualified tax professional as needed.”

How does state tax treatment follow the federal change?

State tax treatment does not follow the federal change automatically.

State income tax codes connect to the federal code in different ways. A rolling conformity state tracks the current Internal Revenue Code, so a federal change flows through on its own. A static conformity state is pinned to the federal code as it read on a specific date, and a federal change after that date doesn’t reach the state’s return until the legislature moves the pin.

Indiana states its own posture plainly. Its Department of Revenue writes that “Indiana is a static conformity state”, meaning its tax code is “linked to the Internal Revenue Code (IRC) as of a specific date.” The page then describes what Indiana did with that latitude: when ARPA expanded 108(f)(5), the General Assembly passed a law decoupling Indiana from the provision and requiring taxpayers to add the excluded amount back to Indiana adjusted gross income. The statute is cited on the page as IC 6-3-1-3.5(a)(30).

Wisconsin’s Department of Revenue describes the mirror image. On income-driven repayment forgiveness, it states that “the amount of forgiveness from an income-driven repayment plan is included in gross income” for Wisconsin purposes, because “Wisconsin has not adopted the changes made by the American Rescue Plan Act” to 108(f)(5). That guidance is Wisconsin Guidance Document 100307, dated December 2, 2025 — a date that matters, and we’ll come back to it. The document also says that laws enacted after its date, new administrative rules, and court decisions may change its interpretations. So what it states is Wisconsin’s published reading of its own law as of that date, not a conclusion about anybody’s return. That part is a question for a tax professional.

So the honest general answer to “how does state treatment follow the federal change” is: through whatever conformity posture your state has, applied to 108(f)(5) specifically, and possibly modified by a decoupling statute your legislature passed years ago for its own reasons. That is not a question you can answer from a headline about the federal change, and it’s a large part of why how the federal change taxes IDR forgiveness didn’t take up the state layer.

What does the Education Department tell borrowers to do about state taxes?

The Education Department tells borrowers to consult their state tax office or a tax professional, and it does not publish a state-by-state list. Asked the state question on its own help pages, it points borrowers outward: twice, in two different places, to two slightly different destinations.

On the PSLF page, after saying your state may tax you, it says to “check with the IRS or a tax advisor.”

On the total and permanent disability discharge page, it’s more specific. The discharged amount isn’t federal income, it says, but “However, your state may tax them.” And then: “Consult with your state tax office or a tax professional” before filing your state return.

The same page goes further. It notes you “may decline the discharge for any reason, including concerns about state income tax” consequences, and gives a number to call to do it: 1-888-303-7818.

Your state tax office, or a tax professional. That’s the federal government’s own instruction to a borrower who asks.

How to get a real answer for your own state

You can get a documented answer for your own state in about ten minutes, using the same steps we ran on Indiana and Wisconsin.

1. Work out which provision your forgiveness runs through. PSLF and Teacher Loan Forgiveness run through 108(f)(1). National Health Service Corps loan repayment runs through 108(f)(4), which excludes amounts received rather than amounts discharged, a different mechanism. Income-driven repayment forgiveness runs through 108(f)(5), the one the 2025 change rewrote. If you’re not sure which category you’re in, federal student loan forgiveness programs sorts them out.
2. Go to your state’s department of revenue directly, the actual agency site, not a roundup.
3. Search that site for “student loan forgiveness.” Both states we looked at publish a dedicated page under exactly that phrase.
4. Find the date on the page. Wisconsin stamps its guidance with an as-of date and a document number. Indiana’s page carries no as-of date for its substantive content, only a site-wide copyright year, which is not the same thing. A page with no date is a page you can’t rely on for a change this recent.
5. Check whether the page addresses discharges after December 31, 2025. Not forgiveness generally — that specific window. If it doesn’t, you’ve learned something real: that page doesn’t answer your question, and nobody quoting it can answer it for you either.
6. Take what you found to a tax professional. This is what the Education Department says, what Indiana’s Department of Revenue says, and what we’d say too. A revenue department page tells you what the state has published. It doesn’t tell you what your return should say.

Keep your own records while you’re at it. Wisconsin’s guidance notes that even without a Form 1099-C for cancelled debt, “you must report such income on your individual income tax return” unless it qualifies for an exclusion. That’s Wisconsin’s rule rather than a national one, and it’s the kind of thing to confirm for your own state with a tax professional. The same documentation habit that matters when PSLF payment counts move unexpectedly, or when an IDR forgiveness letter arrives.

Why a list of states won’t answer this for you

A state-by-state list can’t answer this question, because the guidance it copies from is already dated on the day it’s copied. Now the dates.

Wisconsin’s student loan forgiveness guidance is a well-run document. It’s numbered, it’s versioned, it names the statutes it interprets, and it tells you plainly that laws enacted after its date may change its interpretations. Its date is December 2, 2025.

The federal change applies to discharges after December 31, 2025.

So a dated, numbered, actively maintained state guidance document was published twenty-nine days before the change it would need to address. That isn’t Wisconsin being slow. That’s what a dated guidance document does — it describes the law as of a date, and the world moves past it.

Indiana’s page shows the same thing less gracefully. The catch-all row of its forgiveness table is labeled “2021–25.” Its worked example uses Indiana’s 2023 tax rate. Its filing instructions reference a 2023 return due April 15, 2024. The page addresses a window that has closed, and it says nothing at all about discharges after December 31, 2025, which means we can’t tell you from that page how Indiana treats one, and neither can anyone else who’s only read that page.

We went looking for a state revenue department that had published guidance updated for the post-2025 federal change. We didn’t find one. That’s a search that came up empty, not proof that none exists.

The case against a state-by-state list isn’t that lists are lazy. A list is a snapshot of guidance that was already dated when it was written, republished by someone who didn’t check the dates, and read by you months later. Going to the revenue department yourself survives all of that, because it ends at a primary source with a date on it and a tax professional who can read it.

We read the Indiana, Wisconsin, and Federal Student Aid pages quoted here on September 1, 2026. Wisconsin’s guidance was stamped December 2, 2025 and numbered 100307. Indiana’s page carried no as-of date for its substantive content, and neither federal page carried one.

Where Finnita fits

Finnita is a specialist student loan enrollment service that focuses exclusively on federal repayment and forgiveness programs. Getting a borrower into the right program, and keeping them there through annual recertification, is what the service does.

To be plain about the boundary: we’re not a tax service, we don’t file your state return, and nothing here is tax advice. Borrowers pay for Finnita directly. What enrollment affects is which forgiveness program you end up in, and whether you get into one at all. Only 11% of borrowers who try on their own succeed.

The Finnita figures that follow are service-wide aggregates across all customers and all programs, not projections for any individual. Finnita customers save an average of $468/month across all enrollees. 98% of Finnita customers are successfully enrolled. 100% refund if we can’t enroll you.

Borrowers can see their projected savings in about 60 seconds. Check Your Savings

Frequently asked questions

Does my state tax PSLF forgiveness?

It may not, and the reason is structural. PSLF’s federal exclusion sits in 26 U.S.C. 108(f)(1), which the 2025 federal change didn’t touch, and which is not the provision states decoupled from. Wisconsin’s Department of Revenue, in guidance dated December 2, 2025, says it follows 108(f)(1) and doesn’t tax PSLF forgiveness. Indiana’s published table, on a page that doesn’t address discharges after December 31, 2025, marks PSLF as not taxable for state or local income tax. Check your own state’s revenue department and confirm with a tax professional.

Did the federal tax change affect PSLF?

No. The change rewrote 26 U.S.C. 108(f)(5) and applies to discharges after December 31, 2025. PSLF is excluded under 108(f)(1), a separate provision, which the rewrite left in place.

What is the difference between rolling and static conformity?

A rolling conformity state’s tax code tracks the current Internal Revenue Code, so federal changes flow through automatically. A static conformity state is pinned to the Code as it read on a fixed date, so a later federal change doesn’t reach the state return until the legislature moves that pin. Indiana describes itself as a static conformity state on its Department of Revenue site.

Will my state tax IDR forgiveness in 2026?

Income-driven repayment forgiveness is excluded under 26 U.S.C. 108(f)(5), which is both the provision the 2025 federal change rewrote and the one both states we captured address separately. That makes IDR the track where state treatment genuinely differs. Whether your own state taxes it in 2026 is a question for that state’s revenue department and a tax professional, and we’d be guessing if we answered it for you.

How do I find out if my state taxes student loan forgiveness?

Start at your own state’s department of revenue rather than a roundup, and search that site for “student loan forgiveness.” The step that decides whether the page is worth anything is the date: check whether it carries an as-of date at all, and whether its content reaches discharges made after December 31, 2025. If it doesn’t, you’ve learned something real rather than nothing. Bring the page itself, date and all, to a tax professional instead of a summary of it.

Do I still owe state tax if I never got a Form 1099-C?

Possibly. Wisconsin’s guidance, dated December 2, 2025, states that you must report cancelled debt on your individual income tax return even without receiving a Form 1099-C, unless it qualifies for an exclusion. Rules vary by state, so confirm with your own state’s revenue department and a tax professional.

Does the Education Department say whether my state will tax me?

No. It says your state may tax you and points you elsewhere: to the IRS or a tax advisor on its PSLF page, and to your state tax office or a tax professional on its disability discharge page. The Department doesn’t publish a state-by-state answer.