Loan balances forgiven through the Public Service Loan Forgiveness program are not subject to federal income tax, and that exemption has no expiration date. It sits in the Internal Revenue Code as a permanent rule, separate from the temporary protection that covered other kinds of student loan forgiveness through the end of 2025. The only place a tax bill on PSLF forgiveness is still possible is at the state level, and only in a small number of states.
The Federal Exemption Is Permanent
The exclusion lives in Internal Revenue Code Section 108(f)(1). It says forgiven student loan debt is not counted as income when the forgiveness is conditioned on the borrower working for a set period in a qualifying profession for a broad class of employers. PSLF fits that description directly: 120 qualifying payments while working full-time for a government agency or eligible nonprofit, and the remaining Direct Loan balance is discharged.1Office of the Law Revision Counsel. 26 U.S. Code 108 – Income From Discharge of Indebtedness
Section 108(f)(1) has no sunset date. It does not depend on any budget deal, executive action, or temporary legislation. Whether Congress extends or lets other student loan tax breaks lapse, PSLF forgiveness stays outside taxable income. Borrowers who received forgiveness through the Temporary Expanded PSLF waiver are covered under the same statutory framework.
Why This Is Different From IDR Forgiveness
The American Rescue Plan Act of 2021 created a broader, temporary exclusion that covered all federal student loan forgiveness for discharges occurring between January 1, 2021, and December 31, 2025. That provision expired at the end of 2025, and Congress did not extend it.
The result is that borrowers on income-driven repayment plans whose remaining balances are forgiven after 20 or 25 years are again facing federal income tax on the forgiven amount. That does not touch PSLF. The permanent Section 108(f)(1) exclusion is a separate rule, and the expiration of the ARPA provision changes nothing for PSLF borrowers.1Office of the Law Revision Counsel. 26 U.S. Code 108 – Income From Discharge of Indebtedness
State Income Tax Is the One Place to Check
Federal tax treatment does not automatically carry over to your state return. Each state decides which federal exclusions it adopts. The majority of states with an income tax conform to the federal treatment of PSLF, meaning the forgiven balance is exempt at the state level too. States without an income tax pose no issue at all.
A small number of states decouple from the federal student loan forgiveness exclusion. As of 2026, only one state is known to specifically tax PSLF forgiveness. A few others have historically taxed some forms of student loan forgiveness while still exempting PSLF, and conformity rules can shift when state legislatures act. If you live in a state with an income tax, confirm your state has adopted the Section 108(f) exclusion before you file. A call to your state’s department of revenue, or a short consultation with a tax preparer who knows your state’s code, is enough.
If your state does tax the discharge, the potential bill scales with the state’s rate and your forgiven balance. Someone with $150,000 forgiven in a state with a top rate near 5% could face a state tax bill in the neighborhood of $7,500 even though nothing hits the federal return. That is the outlier case, but plan for it if it applies to you.
You Should Not Receive a 1099-C
Ordinarily, when a lender cancels $600 or more of debt, it files Form 1099-C with the IRS and sends the borrower a copy, and the canceled amount gets treated as income. The IRS has made clear that servicers should not issue a 1099-C for student loan discharges that are non-taxable.2IRS.gov. Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments
So for PSLF forgiveness, no 1099-C should arrive. When everything works correctly, there is nothing to report on your federal return related to the discharge. You do not include the forgiven amount as income, and no special form is required to explain the exclusion.
If a 1099-C Shows Up Anyway
Servicer systems do not always reflect the non-taxable status of a discharge, and some borrowers have received a 1099-C after PSLF forgiveness. If that happens:
- Contact your servicer and ask for a corrected form. The IRS advises borrowers to reach out to the creditor whenever a 1099-C contains incorrect information.3Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not?
- Do not report the forgiven amount as income on your return. The correct taxable amount for PSLF forgiveness is zero, regardless of what the erroneous form says.
- Keep your PSLF approval letter, your zero-balance confirmation, and any correspondence with the servicer. If the IRS sends a notice about the mismatch, those documents resolve it quickly.
Some tax preparers recommend attaching Form 982 as a precaution when an incorrect 1099-C has already been filed with the IRS. Form 982 reports exclusions of canceled debt from income.4Internal Revenue Service. Instructions for Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness Whether it is technically required for a Section 108(f) exclusion is debatable, because the form’s instructions focus on exclusions under Section 108(a), which covers situations like bankruptcy and insolvency. Filing it does no harm and can head off an automated IRS notice triggered by the 1099-C. A tax professional can tell you whether it makes sense in your specific case.
Quick Recap
PSLF forgiveness is not taxable on your federal return, and no temporary law needs to be renewed for that to remain true. The one thing worth checking is your state’s conformity to the federal exclusion, especially if your forgiven balance is large. If a 1099-C arrives after your discharge, treat it as a servicer error, keep the paperwork that shows the discharge qualified under PSLF, and do not add the forgiven amount to your income.