• Because not all states follow the federal tax code, student debt forgiveness could face state taxes.
  • Exempting debt forgiveness from taxation will require legislative action in some states.
  • That adds to the complexity and political dynamics of the major move by President Joe Biden.

Austin Hammond and his wife may be able to buy a home sooner than expected because of the debt relief President Joe Biden announced in August.  

But Hammond, a 25-year-old nonprofit outreach coordinator in Wisconsin, was surprised to learn that, under current state law, he will have to pay income tax on his $10,000 of debt forgiveness even though it’s exempt from federal taxes.