Forgiveness Tax Calculator
The balance you expect forgiven, and the year it lands
Your result will appear here
Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- General mathematical model
- Scope and limitations
- Educational estimate only. Confirm the assumptions, current rules, fees, and rounding that apply to your situation before making a decision.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the balance you expect to be forgiven. This is the amount left at the end of your repayment plan, not what you owe today — the income-driven repayment page works it out if you do not have the figure.
- 02
Set the years until forgiveness happens, and the other taxable income you expect in that year. The page wants income after your deductions and before the forgiveness is added, because the forgiven balance stacks on top of it.
- 03
Choose your filing status — 1 for single, 2 for married filing jointly. It selects a different set of 2026 brackets, not just a different label.
- 04
Set the state rate. This one is an assumption you own: states differ, some do not follow the federal treatment, and several charge no income tax at all. Enter 0 if yours does not tax income.
- 05
Set the return on money you put aside, then read the monthly figure and the schedule. The 2026 bracket thresholds sit in the advanced panel if you want to model a different year.
Formula
The forgiven balance is stacked on top of the other income of the discharge year, and the tax is the difference the stacking makes: Federal tax = tax(other income + forgiven balance) − tax(other income) Both figures use the 2026 rate tables from Rev. Proc. 2025-32 §4.01, walking the brackets in order: 10%, 12%, 22%, 24%, 32%, 35%, 37%. The state part is simply a rate you set, because conformity differs: State tax = forgiven balance × state rate Total = Federal tax + State tax The effective rate on the balance is the total divided by the balance, which is always lower than the top bracket reached, because the amount is spread across several brackets. The monthly amount is an ordinary sinking fund — the level payment whose future value equals the bill on the due date: Monthly = Total × r ÷ ((1 + r)^n − 1) where r is the monthly return and n is the number of months until the discharge. When the return is zero the formula collapses to Total ÷ n. What you contribute is Monthly × n; the rest of the bill is paid by the return.
Example
Expect $65,000 to be forgiven in 18 years, with $72,000 of other taxable income in that year, filing single, a state charging 5%, and 4% on money set aside. Stacking the balance on top of the income takes the federal tax for the year from $10,552 to $25,478, so the forgiveness itself adds $14,926. The state adds $3,250, for a bill of $18,176 — 28.0% of the balance, even though the top bracket reached is 24%, because the amount is spread across several brackets and the state rate is flat. The forgiveness is still worth having: $65,000 written off against $18,176 of tax leaves $46,824. Funding it costs $58 a month. The schedule shows the fund passing $704 after the first year, $8,481 by year ten with $6,911 contributed, and landing exactly on $18,176 at year eighteen — of which you contributed $12,440 and the return provided $5,736. Three alternates were run to show the range. Filing jointly with $120,000 of other income keeps the top of the income in the 22% bracket and drops the bill to $17,550, needing $56 a month. Living in a state with no income tax removes the $3,250 entirely, leaving $14,926 and $47 a month. And leaving it only 8 years instead of 18 raises the monthly figure to $161 and your own share of the bill to $15,453, which is the clearest argument on the page for starting early.
Definitions
- Discharge of indebtedness income
- The general rule that a debt cancelled for less than the amount owed is income to the borrower, unless a specific provision of §108 excludes it. A forgiven student loan balance is income under this rule unless one of those exclusions applies.
- Section 108(f)(5)
- The exclusion for discharged student loans. As rewritten by Public Law 119-21 §70119 for discharges after 31 December 2025, it covers only discharges on account of death or the total and permanent disability of the student, now including private education loans, and requires a social security number on the return.
- Section 108(f)(1)
- The older, narrower exclusion left untouched by the 2025 act: a discharge under a provision of the loan cancelling the debt if the borrower works for a certain period in certain professions for a broad class of employers.
- Insolvency exclusion
- Section 108(a)(1)(B), which keeps cancelled debt out of income to the extent liabilities exceeded the fair market value of assets immediately before the discharge. Claimed on Form 982 and capped at the amount of the insolvency by §108(a)(3).
- Sinking fund
- Money set aside on a schedule to meet a known future cost. Here it is the monthly amount that, with investment return, grows to exactly the tax bill by the year the discharge lands.
Good to know
The exclusion that expired, and the one that replaced it
For five years borrowers heading towards income-driven forgiveness had a rule that made the destination painless. The American Rescue Plan Act of 2021 inserted a temporary provision at §108(f)(5) of the tax code excluding from income essentially any student loan discharged after 31 December 2020 and before 1 January 2026, whoever made the loan and whatever the reason for the discharge. That window has closed, and what replaced it is much narrower. Section 70119 of Public Law 119-21 rewrote §108(f)(5) so that it now carries the heading Discharges on account of death or disability, and reaches only a discharge pursuant to the relevant provisions of the Higher Education Act or one otherwise made on account of the death or total and permanent disability of the student. The new version is in two respects more generous than what preceded the 2021 rule: it is permanent rather than temporary, and it extends to private education loans as well as federal ones. It also attaches a condition that did not exist before, requiring the taxpayer to include a social security number on the return for the year of the discharge, with an omission treated as a mathematical or clerical error. The amendments apply to discharges after 31 December 2025. The practical consequence for anyone repaying under an income-driven plan is blunt. A balance written off at the end of twenty or twenty-five or thirty years of payments is no longer excluded by anything. It is discharge of indebtedness income, taxed as ordinary income in the year the discharge happens, in exactly the way a bonus of the same size would be. That is the whole reason this page exists, and it is why the figure it produces is so much larger than borrowers expect: on the page's example a $65,000 discharge landing on top of $72,000 of other taxable income produces a bill of $18,176.
Why the bill is bigger than your bracket suggests
The most common mistake in estimating this bill is multiplying the forgiven balance by a single tax rate. That understates it in one way and overstates it in another, and the page computes it properly by stacking. The forgiven amount is added on top of the income you already have, so it is taxed in the brackets above your existing income rather than from the bottom of the table. On the example, $72,000 of other taxable income alone produces $10,552 of federal tax at the 2026 rates published in Rev. Proc. 2025-32 §4.01. Add the $65,000 and the total becomes $25,478, so the forgiveness itself is responsible for $14,926. That is 23.0% of the balance — well above the effective rate on the underlying income, and well below the 24% bracket the top of the income now reaches. Both facts matter. It is higher than a naive average because the money sits on top; it is lower than the top bracket because the balance spans several brackets on its way up. Add a state charging 5% and the total reaches $18,176, or 28.0% of what was forgiven. Filing status changes the answer more than people assume, because the joint brackets are wider rather than simply doubled: rerunning the example as a married couple filing jointly with $120,000 of other income keeps the top of the income in the 22% bracket and brings the bill down to $17,550. Two features of this bill make it harder to meet than an ordinary tax liability of the same size. Nothing is withheld at source, because there is no payer to withhold it, so the entire amount arrives as tax due with the return. And it arrives in a single year, on top of whatever else that year brings. An underpayment penalty is possible if nothing is paid in during the year, which is a reason to talk to a preparer well before the discharge rather than after it.
The exclusions that survive, and the one worth checking
Two provisions of §108 still remove some or all of this bill, and they are worth understanding because they work in completely different ways. The first is §108(f)(1), which the 2025 act did not touch. It excludes from income a discharge made pursuant to a provision of the loan under which all or part of the debt would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers. That is the language public service forgiveness and teacher loan forgiveness are treated as falling under, and it is why those routes are generally described as tax-free while an income-driven discharge is not. Read the test carefully before relying on it. It turns on a provision in the loan about working, not on the name of the programme, and neither IRS Publication 4681 nor Tax Topic 431 — both of which describe this exclusion in the statute's own words — names any programme at all. That is a gap worth taking to a preparer rather than assuming the label settles it. The second is the insolvency exclusion at §108(a)(1)(B), and it is the one most borrowers overlook. It keeps cancelled debt out of income where the discharge occurs while the taxpayer is insolvent, with §108(d)(3) defining insolvent as nothing more complicated than the excess of liabilities over the fair market value of assets, measured immediately before the discharge. Section 108(a)(3) caps the relief at the amount of that insolvency, so someone insolvent by $32,500 when $65,000 is forgiven excludes half and is taxed on the rest. The crucial detail is the timing: the forgiven loan itself is a liability immediately before the discharge, which is precisely what pushes many borrowers into insolvency on the test date. It is claimed on Form 982 by ticking the box on line 1b and entering the smaller of the debt cancelled or the insolvency amount on line 2, with Publication 4681 supplying a worksheet that totals liabilities and assets line by line.
Turning a frightening number into a monthly one
The reason this bill has acquired the nickname tax bomb is that it is usually met as a surprise rather than as a plan, and a five-figure demand with no warning is a different thing from the same amount saved towards for two decades. Treated as a sinking fund the number stops being frightening. On the page's example, $58 a month for eighteen years at a 4% return reaches $18,176 on the day it is needed, and only $12,440 of that is money contributed — the remaining $5,736 is investment return. The schedule shows the shape of it: $704 after the first year, $8,481 by year ten against $6,911 contributed, and the fund landing exactly on the bill at year eighteen. Time is doing most of the work, which is why the single most valuable thing this page can tell anyone is to start. Rerunning the same bill with only eight years left raises the monthly figure to $161 and pushes your own contribution to $15,453 of the $18,176. Where the money sits matters almost as much as whether it exists. The date is known far in advance, so it does not have to be held in cash for decades, but it should be earmarked and reachable without penalty — money inside a retirement account would be taxed again on the way out to pay a tax bill, which defeats the purpose. Two honest cautions belong with all of this. The state line on the page is an assumption you set, not a lookup: most states begin from a federal income figure so a discharge flows through automatically, several charge no income tax at all, and the only state treatment readable while this page was built was Indiana's, whose own bulletin confirms that its addback does not affect §108(f)(1) to (4) discharges and that it allows the insolvency exclusion. And eighteen years is a long time in this area of law. The rule creating this bill was written in 2025 and the rule it replaced lasted five years. Save as though the bill is real, because on today's law it is, then re-read the rule as the date approaches. Your servicer settles what is forgiven and a return preparer settles the tax.
Frequently asked questions
Is student loan forgiveness taxable in 2026?
Income-driven forgiveness is, again. Section 70119 of Public Law 119-21 rewrote 26 U.S.C. §108(f)(5) so it now covers only a discharge on account of death or the total and permanent disability of the student, and that applies to discharges after 31 December 2025. The broad exclusion that covered every student loan discharge from 2021 through 2025 has gone. So a balance written off at the end of an income-driven plan is ordinary income in the year of discharge. On the page's example — $65,000 forgiven on top of $72,000 of other taxable income — that is $18,176 of tax, $14,926 federal and $3,250 to a state charging 5%.
How much should I save each month for the tax bill?
On the example, $58 a month. That is the level amount which grows to $18,176 over 18 years at a 4% return, and only $12,440 of it is money you contribute — the other $5,736 is return earned along the way. Time is doing most of the work, which is why starting matters more than the amount. Rerun the same bill with only 8 years to save and the monthly figure rises to $161, and you contribute $15,453 of the $18,176 yourself.
Is PSLF taxable too?
It is generally not treated that way, and the reason is that it sits under a different subsection. Section 108(f)(1), which the 2025 act did not touch, excludes a discharge made pursuant to a provision of the loan under which the debt is cancelled if the borrower works for a certain period in certain professions for a broad class of employers. That is the language public service and teacher forgiveness are treated as falling under. Be precise about what that means: the test turns on a provision in the loan about working, not on the name of a programme. IRS Publication 4681 and Tax Topic 431 both describe this exclusion in the statute's own words, and neither names a programme, so confirm your own discharge with a preparer.
What is the insolvency exclusion, and would it help me?
It can remove some or all of the bill. Section 108(a)(1)(B) keeps cancelled debt out of income where the discharge happens while you are insolvent, and §108(d)(3) defines insolvent as the excess of your liabilities over the fair market value of your assets, measured immediately before the discharge. Section 108(a)(3) caps the relief at the amount of that insolvency, so being insolvent by $30,000 when $65,000 is forgiven excludes $30,000 and leaves the rest taxable. You claim it on Form 982 by ticking the box on line 1b and entering the smaller of the debt cancelled or the insolvency amount on line 2. Publication 4681 has the worksheet. The forgiven loan itself counts as a liability immediately before the discharge, which is what makes the test winnable for a lot of borrowers.
Does the forgiven balance push me into a higher bracket?
It can, and on the example it does. With $72,000 of other taxable income the last dollar is taxed at 22%; adding $65,000 takes the top of the income into the 24% bracket. That is why the federal part works out at 23.0% of the balance rather than at any single headline rate — the amount is spread across several brackets. It does not make your other income more expensive, though. Only the dollars above each threshold are taxed at the higher rate.
Why is there a state tax field instead of a state picker?
Because the honest answer varies and the site has no state lookup. Most states begin from a federal income figure, so a forgiven balance flows into the state return automatically; a few adjust it; and several charge no income tax at all, in which case you enter 0 and the bill on the example falls from $18,176 to $14,926. The only state treatment that could be read at source while this page was built was Indiana's, whose Income Tax Information Bulletin #119 confirms the shape of the problem from the other side: Indiana's own addback does not affect discharges under §108(f)(1) to (4), and Indiana allows the §108(a)(1)(B) insolvency exclusion. Check your own state's revenue department for the year of your discharge.
Will this rule still be here when my forgiveness arrives?
Nobody can promise that, and the page does not. The rule creating this bill was written in 2025, and the one it replaced lasted five years. Eighteen years is a long time in this corner of the law. The sensible approach is to save as though the bill is real, because on today's law it is, and to re-read the rule as the date approaches rather than assuming today's answer survives. Your servicer settles what is actually forgiven and when, and a return preparer settles the real tax in the year it happens.