Public Service Loan Forgiveness is not taxable by any state except Mississippi. Every other state with an income tax follows the federal rule that excludes PSLF from gross income, and nine states have no income tax to begin with. If you live anywhere other than Mississippi and your remaining balance is wiped out after 120 qualifying payments, you owe nothing to your state on the forgiven amount.
Mississippi Is the Only State That Taxes PSLF
Mississippi defines taxable income under its own code rather than starting from the federal number, and the state has confirmed that it treats all forms of student loan forgiveness, PSLF included, as taxable income. A bill introduced in the 2026 legislative session, HB 842, would have excluded PSLF from Mississippi gross income, but it died in committee in February 2026. Until the legislature acts, Mississippi residents who reach PSLF should expect a state tax bill on the forgiven balance.
The numbers add up quickly. On $80,000 of forgiven debt at Mississippi’s top rate of 5 percent, the state tax runs roughly $4,000. Nothing is withheld from forgiven debt, so the full amount is due when you file. If you are on track for PSLF and live in Mississippi, build estimated payments or dedicated savings into your plan in the year forgiveness lands.
Why Every Other State Exempts PSLF
The federal tax code has excluded PSLF from gross income since the program began. Under 26 U.S.C. § 108(f)(1), loan forgiveness tied to working in a qualifying profession for a required period does not count as income.1Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness That describes PSLF exactly, and the exclusion has no expiration date.2Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes
Most state income tax codes start with federal adjusted gross income or federal taxable income and adjust from there. Because PSLF never enters the federal starting number, it never enters the state calculation either. A state would have to pass a specific addback to tax PSLF, and only Mississippi does.
States With an Income Tax
Every state that imposes an income tax, other than Mississippi, conforms to the § 108(f)(1) exclusion for PSLF. That includes states you may have seen on lists of places that tax student loan forgiveness: Arkansas, Indiana, Minnesota, North Carolina, and Wisconsin all plan to tax income-driven repayment forgiveness in 2026 but continue to exempt PSLF. Arkansas has said so explicitly. Minnesota has permanently conformed to the federal exclusion for forgiveness tied to a specific profession. North Carolina has not decoupled from § 108(f)(1).
States With No Income Tax
Nine states impose no individual income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Residents of these states have no state tax exposure on PSLF or any other income. Washington taxes certain capital gains above a threshold, but forgiven student loan debt is not a capital gain.
Don’t Confuse PSLF With Income-Driven Repayment Forgiveness
Most of the alarming headlines about states taxing forgiven student loans are not about PSLF. They are about income-driven repayment forgiveness, a different program with different tax treatment. IDR forgiveness wipes out whatever balance remains after 20 or 25 years of payments regardless of your employer, and it does not qualify for the permanent § 108(f)(1) exclusion. A temporary provision in the American Rescue Plan Act made IDR forgiveness federally tax-free from 2021 through 2025, and that provision has now expired.3Internal Revenue Service. Publication 970, Tax Benefits for Education
Starting in 2026, IDR forgiveness is taxable at the federal level and in states that follow the federal definition. PSLF is not, because it never relied on the temporary rule. If you see a list of states that “tax student loan forgiveness” and the article doesn’t separate PSLF from IDR, treat it with skepticism.
What to Expect at Tax Time
When PSLF wipes out your balance, you may or may not receive a Form 1099-C from your servicer; reporting rules for student loan discharges are shifting as the ARPA-era provisions expire.4Internal Revenue Service. Instructions for Forms 1099-A and 1099-C Receiving a 1099-C does not mean you owe tax. The form reports the discharge; you exclude the amount on your return under § 108(f)(1).
In Mississippi, the forgiven balance goes on your state return as income. Everywhere else, there is nothing to add back.
The Insolvency Exclusion
If you end up owing tax on any forgiven student loan debt and your total liabilities exceeded the fair market value of your assets immediately before the discharge, you may qualify for the insolvency exclusion under 26 U.S.C. § 108(a)(1)(B).5Office of the Law Revision Counsel. 26 U.S. Code 108 – Income From Discharge of Indebtedness The exclusion is capped at the amount by which you were insolvent. If you owed $150,000 in total debts against $100,000 in assets, you were insolvent by $50,000 and could exclude up to that amount. This matters mainly for Mississippi PSLF recipients and for borrowers facing IDR forgiveness in states that tax it. Run the numbers with a tax professional in the year of forgiveness, because the calculation is done at the moment of discharge.
Confirming Your State’s Current Rule
State tax conformity changes through legislation, sometimes retroactively. Check your state department of revenue in the year you receive forgiveness, especially if a bill like Mississippi’s HB 842 moves in your legislature. If you cannot pay a Mississippi state tax bill in full, most state revenue departments offer installment agreements, and some allow offers in compromise based on financial hardship.