1099-C and Student Loan Forgiveness: 2026 and Later

When a debt is canceled or forgiven, the IRS generally treats that amount as Taxable income – Because you received the money, used it, and no longer have to pay it back.

That’s why the IRS requires lenders to issue… Form 1099-C Shows the amount of debt that has been forgiven. You then report it on your tax return, unless you qualify for an exception.

Congress has temporarily protected student loan borrowers from the “student loan tax bomb” under Section 9675 of the American Rescue Plan Act of 2021 (add. IRC § 108(f)(5)), making most student loan forgiveness tax-free from 2021 through 2025.

However, beginning January 1, 2026, the only student loan forgiveness that remains tax-deductible are Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and Death and Disability Loan Forgiveness.

What’s new for 2026 and beyond

• End of the tax exemption window: The temporary forgiveness of forgivable student loans under federal law expires on December 31, 2025.
• Educational Guidance Department: Borrowers whose relief completes in 2025 under IBR or ICR plans will do so no Get a 1099-C. Those whose remission will occur in 2026 or later will.
• Remission depends on when you reach the milestone:The date the exemption and taxes are calculated is when you reach the exemption stage (240 or 300 payments), not necessarily when the Department of Education processes it.
• Private loan settlements include: Private student loan discharges are also becoming taxable again.
• Country differences: Some states may still exclude student loan forgiveness from taxable income, but others can follow federal law. Check your state department’s revenue guidelines each filing season.

Understanding Form 1099-C

Form 1099-C is the IRS document used for reporting Cancel or discharge debts of $600 or more. For student loans, they are issued by the loan holder or servicer when your balance is forgiven outside the 2021-25 tax-free window.

What does each box mean?

• Box 1:Date of the specific event (date of forgiveness)
• Box 2:The amount of debt discharged (the amount you may need to report as income)
• Box 3:Interest, if listed in Box 2
• Box 4:Debt Description (usually blank or Loan ID)
• Box 6:Reason code

Each code in Box 6 corresponds to a specific cancellation event. Most borrowers with federal student loans will receive Code F.

• Code A – Bankruptcy: Debt cancellation as part of aBankruptcy procedures.
• Code B – an identifiable event: Debts are canceled due to a specific event such as aMortgage.
• Code C – Expedited Shipping: Debts written off earlier than usual by the creditor.
• Code D – Discharge of debt in settlement agreement: Cancellation of the debt as part of the settlement between the debtor and the creditor.
• Code E – Debt ReliefReducing or forgiving debt through negotiation or agreement.
• Code F – Government or IRS discharge: The debt has been canceled by the IRS or another government agency.

If you receive this form, keep it with your records and compare the amount to your loan servicer statement. You’ll report it on your tax return using IRS Form 982 if you qualify for an exception such as insolvency.

How does a 1099-C affect my taxes?

The 1099-C will report the amount of student debt forgiven. First, check this amount against your records. If it is wrong, contact the creditor, whose contact information will be provided on the form.

on formBox 2 shows you the amount of debt discharged—you’ll need to put it in the “Other Income” line on your 1040 tax form. This amount will essentially be added to your adjusted gross income on your taxes and will be taxed as income. The federal government counts any canceled debt as a lump sum of money handed to you to pay off the rest of the debt.

What does that mean? In short, you are expected to pay taxes on income above and beyond what you earn in wages.

Depending on the amount discharged, this additional “income” may push you into the next tax bracket, increasing the percentage you pay in taxes not only on the discharged debt but on your ordinary income as well. Furthermore, this additional income may disqualify you from claiming certain deductions and credits that would normally lower your tax burden.

Example: the return of the tax bomb

Jimmy has $25,000 remaining after making 300 qualifying payments on the IBR plan.

• If payment occurs 300 in October 2025Jimmy does not receive a 1099-C and pays no taxes.
• If payment occurs 300 inJanuary 2026Jamie receives a 1099-C for $25,000 and may owe income tax on that amount when she files her 2026 return in 2027.

That extra $25,000 is treated as ordinary income, and depending on which federal tax bracket you’re in, it could pay up to $9,250. However, this is an unlikely amount because it means she also earned more than $626,000, which means she likely doesn’t have a loan of $25,000 remaining.

Most borrowers will not face a tax bomb due to insolvency. Even if they did, it’s a very low amount.

The College Investor Tax Bomb Estimator can help you understand scenarios and how much you could pay.

What you can do now

If you’re approaching student loan forgiveness under IDR plan forgiveness or borrower defense of repayment (the most common taxable scenarios), here are some steps you can take:

1. Confirm your schedule

Log in to your loan servicing account to check the number of eligible payments. If you are on track to reach amnesty by late 2025 you will avoid the tax bomb. But after January 1, 2026, you will face additional tax liabilities.

2. Estimate the potential tax impact

If your exemption date falls in 2026 or later, use your marginal tax rate to estimate your bill. For example: Discharging $25,000 at 22% creates a federal liability of $5,500. Use The College Investor’s Tax Bomb Calculator to run the numbers.

3. Find exceptions

Insolvency or bankruptcy may exempt you from tax on forgiven debts. Use Form 982 to claim the exclusion if eligible.

4. Consult a tax professional

A CPA or EA can calculate taxable income from a 1099-C and help you plan to pay or withhold adjustments.

1099-C is up for grabs for student loan borrowers. If your pardon occurs before the end of 2025, you are safe. After that, the era of tax exemption ends. Plan ahead now to avoid surprises when you file your 2026 return.

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