Tag Archives: Student loan forgiveness

SC Tax Consequences of Federal Student Loan Debt Forgiveness

September 1, 2022

South Carolina Tax Treatment. South Carolina adopts Internal Revenue Code Section 108. During the 2022 Legislative Session, South Carolina conformed to the Internal Revenue Code as of December 31, 2021,2 including conformity to the amendment to Internal Revenue Code Section 108(f)(5), as amended by Section 9675 of the federal American Rescue Plan Act of 2021.

Since South Carolina adopts Internal Revenue Code Section 108, to the extent a student loan described in Internal Revenue Code Section 108(f) is forgiven for federal income tax purposes and excluded from federal taxable income, then the amount is also excluded from South Carolina taxable income.

For federal income tax purposes, the receipt of a loan is not a taxable event. Forgiveness of a loan is often treated as taxable income under Internal Revenue Code Section 61, “Gross Income Defined,” and Internal Revenue Code Section 108, “Income from Discharge of Indebtedness.”
Federal Tax Treatment of Student Loan Debt Forgiveness and Temporary Provisions. Internal Revenue Code Section 108(f) relates to student loans.

The federal American Rescue Plan of 20211 (enacted by Congress on March 11, 2021), Section 9675, “Modification of Treatment of Student Loan Forgiveness,” amended Internal Revenue Code Section 108(f)(5) to temporarily add special rules for the discharge of student loans in 2021 through 2025.