Got the Golden Email? Your IDR Forgiveness Is Probably Tax-Free. Here's What to Do Next

If you received a golden email confirming income-driven repayment forgiveness, you likely owe zero federal income tax. The date you first became eligible controls — not the date your forgiveness was processed. But a few borrowers face state taxes or a 2026 eligibility date. That changes the math.

The American Rescue Plan Act (ARPA) made all student loan forgiveness tax-free at the federal level through December 31, 2025. That exemption was not extended. A golden email arriving in 2026 looks like it missed the window.

It didn’t.

A federal court settlement locked in the rule that your effective discharge date is the date you hit 240 or 300 qualifying payments — 20 or 25 years’ worth — not the date the department processes it. If your eligibility date falls in 2025 or earlier, your forgiveness is inside the ARPA window.

The IDR account adjustment — a one-time recount of qualifying payments completed in late 2024 — pushed most golden email recipients past the threshold before 2026. The department won’t file a 1099-C (the tax form that reports forgiven debt as income). No 1099-C means no federal tax event.

What If Your Eligibility Date Is in 2026?

If your eligibility date falls on or after January 1, 2026, the ARPA exemption doesn’t apply. The forgiven amount is taxable income. Based on how the department has processed this batch, that shouldn’t include any current golden email recipients.

Your golden email doesn’t state your eligibility date, though. Once your servicer receives notice from the department that you’re eligible for forgiveness, they can confirm it.

Borrowers with a 2026 eligibility date have an option: the insolvency exclusion (a rule that shelters forgiven debt from taxes when you owe more than you own). You can use IRS Form 982 to exclude some or all of the forgiven amount from taxable income.

Can the IRS Override This?

The IRS, not the department, has final say on whether your forgiveness qualifies as tax-free. But IRS Notice 2022-1 instructs lenders not to file 1099-C forms for qualifying discharges through 2025. And the AFT settlement (*AFT v. U.S. Department of Education*, No. 1:25-cv-802-RBW, D.D.C.) locks in your eligibility date as the effective discharge date.

An override would contradict the IRS’s own published guidance.

Your forgiveness is tax-free at the federal level only. State tax treatment depends on whether your state conforms to federal tax rules.

Most states automatically mirror the ARPA exemption. In those states and D.C., the forgiven amount isn’t taxable at the state level either.

Five states may not conform: Arkansas, Indiana, Mississippi, North Carolina, and Wisconsin. Whether you owe state tax depends on how your state treats federal exemptions. That answer matters for the opt-out decision. If you live in one of these states, check with a tax professional before the opt-out deadline.

If you thought you had years left and suddenly received a golden email, the IDR account adjustment is why. In late 2024, the department completed a one-time retroactive recount of qualifying payments. The recount credited months that servicing failures had prevented from counting — time in forbearance, time on the wrong repayment plan, time on loans before consolidation, and certain deferment periods.

That recount pushed your total past the 20- or 25-year forgiveness threshold without you doing anything new.

How to Verify Your Count

The department removed the visual IDR tracker from StudentAid.gov in April 2025 and hasn’t restored it. The data is still there — you just have to know where to look. Log in to StudentAid.gov and access your payment count at https://studentaid.gov/app/api/nslds/payment-counter/summary. The data isn’t pretty — this video walks through how to read it.

Your servicer can’t help with this. StudentAid.gov tracks the forgiveness count, not your servicer. Screenshot whatever data you can access.

For most borrowers, no. Opting out only makes sense if you work full-time for a qualifying public service employer and you’re close to 120 qualifying PSLF payments. PSLF forgiveness is permanently tax-free under federal law — it doesn’t depend on ARPA. So the upside is real. But only if you’re near the finish line and confident your employment qualifies.

Your PSLF qualifying payment count is still visible on your StudentAid.gov dashboard. Borrowers more than a couple of years away from 120 payments face a simple choice. Take guaranteed tax-free forgiveness now — or keep paying for years to get a tax benefit that already applies.

The March 5 Opt-Out Deadline

The golden email includes an opt-out deadline. For the February 2026 batch, that deadline is March 5, 2026. If you do nothing, forgiveness processes automatically — no acceptance, no signature, no action required. The only borrowers who need to act before March 5 are those who want to opt out.

How Long Discharge Processing Takes

The golden email means the department has identified you as eligible — but your servicer still needs to process the cancellation. Based on previous batches, expect six to eight weeks before your servicer reflects a zero balance. StudentAid.gov and your credit reports lag behind that by another cycle or two.

The delay doesn’t affect your tax protection. Under the AFT settlement, your eligibility date — not your processing date — is what counts.

What Happens to Payments and Recertification While You Wait

Under the AFT settlement, payments made after your eligibility date get refunded once the discharge processes. If the discharge completes before your next payment is due, the payment won’t process at all. If you’d rather not make payments while you wait, ask your servicer for a forbearance.

Income recertification is a separate issue. A missed recertification can knock you off your IDR plan — and that creates a mess during the processing window. If your servicer asks you to recertify, do it.