The taxation of student loan discharges has long been a confusing and often misunderstood area of tax law. With the enactment of the One Big Beautiful Bill Act (P.L. 119-21) (OBBBA), Congress has made several provisions surrounding student loan forgiveness permanent and, most importantly for tax professionals, more favorable to borrowers.

Generally, the Internal Revenue Code treats cancellation of debt (COD) as income. If you borrow money and later are relieved of the obligation to repay it, that cancellation creates taxable income unless an exception applies (IRC §61(a)(12)). This is because forgiven debt effectively enriches the taxpayer as though they had received cash.

OBBBA makes permanent and expands the exclusion from gross income for certain student loan discharges. Specifically, for discharges occurring after Dec. 31, 2025, the forgiven loan amount isn’t counted as income if the borrower dies or becomes totally and permanently disabled. This applies to both federal and private education loans. The exclusion now requires that the taxpayer’s Social Security number be included on the tax return to claim the benefit. The relevant loans are defined as:

• Student loans as defined in IRC §108(f)(2)
• Private education loans as defined in section 140(a) of the Consumer Credit Protection Act (15 U.S.C. 1650(a))

What’s changed under the One Big Beautiful Bill Act?

OBBBA permanently exempts from gross income student loan discharges due to death or total and permanent disability (TPD) so long as the borrower provides their Social Security number (SSN). Prior to this law, some of these exclusions were scheduled to expire, creating uncertainty for planning and compliance purposes.

Additionally, the law codifies and extends exclusions that apply to loan discharges from 2021 through 2025 for any reason, expanding the types of eligible loans and circumstances where income recognition is avoided.

The exclusion applies if the discharge is:

• Pursuant to certain provisions of the Higher Education Act of 1965 (including death or disability discharges)
• Otherwise discharged on account of death or total and permanent disability of the student

This provision is codified in the amendment to IRC §108(f)(5) and is effective for discharges after Dec. 31, 2025.

Types of student loans covered

Under OBBBA, a “student loan” is narrowly defined. It generally includes loans made to assist a student in attending a qualified educational organization, and originated or guaranteed by:

• The U.S. government or its agencies
• A state or local government
• Certain tax-exempt public benefit corporations
• The educational institution itself (if meeting program requirements)
• Private lenders, but only for discharges occurring in 2018-2020 or post-2025 due to death or disability

Loans made specifically for post-secondary education expenses (and properly documented as such) are also covered.

When is discharge excluded from income?

The income exclusions apply if the discharge meets one of these conditions:

• Death or disability: now a permanent exclusion, post-2025 only with required Social Security number on record
• Public service work requirement: loan program ties forgiveness to work in specified fields
• Health-related repayments assistance programs: such as the National Health Service Corps.
• School closure or misconduct: includes closed school discharges and borrower defense claims (e.g., fraud or misrepresentation by the school) under the Higher Education Act (HEA)

For discharges between 2021 and 2025, income exclusion applies regardless of the reason for discharge, so long as the loan fits within the statutory definition under IRC §108(f)(2).

Things to keep in mind

1. Student loan discharges due to death or disability are permanently excluded from gross income for both federal and private loans, with new reporting requirements.
2. Employer payments of student loans remain excludable from income, up to $5,250 per employee per year, with the annual limit indexed for inflation after 2026.
3. No changes are made to the student loan interest deduction.

These provisions are designed to provide continued and expanded tax relief for individuals with student loan debt, particularly in case of death or disability, and to encourage employer assistance with student loan repayments.

Loan services and lenders should NOT issue Form 1099-C, Cancellation of Debt, for these discharges. Not sending Form 1099-C helps avoid mistakes on tax returns and keeps borrowers from getting confused.

Example

Vinny, a public service lawyer, took out $100,000 in federal student loans for law school. His school participates in a loan repayment assistance program (LRAP) designed to encourage graduates to work in public interest law. Under LRAP, the school provides refinancing loans to cover the original debt. If the graduate works five years in a qualifying public service role (e.g., legal aid, public defender), the LRAP loan is forgiven.

Vinny has worked as a public defender for five years. His LRAP loan of $100,000 will be forgiven in 2025.

Tax consequences for Vinny

• Vinny does not recognize $100,000 of COD income.
• The loan was made by a qualifying educational organization.
• The forgiveness was tied to public service employment, satisfying the statutory exclusion.
• Therefore, Vinny does not receive a Form 1099-C, and
• Vinny does not need to report forgiveness on his tax return.

Documentation

While the IRS does not require a specific form to be attached to the return to claim the exclusion, taxpayers should retain documentation of the loan discharge (such as a letter from the lender or the Department of Education) in their records in case of IRS inquiry.

If a taxpayer’s student loan is discharged for reasons not covered by the permanent exclusion (for example, if the discharge is in exchange for services for the lender), the amount may still be taxable and must be reported as income. In such cases, the taxpayer may receive a Form 1099-C and must include the amount on their tax return.

Whether the discharge is excluded or taxable, the taxpayer should always request documentation from the lender explaining the nature and reason for the discharge.

Summary of key points

• No income inclusion for qualifying discharged student loans under the OBBBA
• No Form 982 or other special form is required to claim the exclusion
• No Form 1099-C should be generated for qualifying discharges
• Taxpayer must include their SSN on the tax return for the year of discharge to claim the exclusion for death or disability discharges
• Retain documentation of the discharge for your records
• If the discharge does not qualify, the amount may be taxable and must be reported

The permanent income exclusion under the OBBBA simplifies the tax treatment of discharged student loans for most taxpayers, eliminating the need to report the discharged amount as income and reducing the associated paperwork. The main new requirement is to ensure the taxpayer’s SSN is included on the return for the year of discharge in order to claim the exclusion for death or disability discharges.

If you’re advising students, professionals or educational institutions, make sure you’re fluent in the details of these exclusions and ready to help your clients make the most of them.

NATP has proudly named its Alabama chapter the 2025 Chapter of the Year. This prestigious recognition is awarded annually based on exceptional membership growth, education offerings, member communication and volunteer engagement.

The Alabama chapter distinguished itself with remarkable membership growth, dedication to valuable educational programs, proactive communication with members and strong volunteer participation.

Amanda Schumacher, NATP chapter program manager, praised the chapter, saying, “We’re incredibly proud of the Alabama chapter and the amazing work they’ve accomplished. Their emphasis on education and active member engagement provides tremendous value to our members and sets a wonderful example for other chapters.”

The Texas chapter was recognized in second place for its excellent educational events and networking initiatives, while Michigan took third place for its consistent member communications and robust educational programs.

The winners were officially announced at NATP’s annual Taxposium, held July 21-23 at Caesars Palace in Las Vegas.

To learn more about NATP or its chapters, visit natptax.com.

As client expectations evolve, more tax professionals are turning to text messaging to streamline communication with their clients and reduce no-shows, especially during the busiest months of the year. SMS is fast, direct and practical, helping firms minimize admin overhead, increase client response rates and drive more on-time filings. Unlike email or phone calls, business texting comes with its own set of compliance responsibilities.

If you’re not familiar with the TCPA, CTIA guidelines and the latest 10DLC registration requirements, you’re not alone, but skipping over those details could put your practice at risk. Keeping client data safe is non-negotiable, but that does not mean you cannot benefit from the robust power of automated SMS.

It sounds daunting, but with the right tools, you can fully leverage texting without worrying. In this article, we’ll walk through the essential rules, common pitfalls and how to choose a texting platform that keeps you protected so you can communicate with confidence this tax season and beyond.

Why SMS is a smart move for tax firms

Tax season moves fast, and so do your clients. Busy schedules make staying connected challenging. That’s why more tax pros are turning to SMS; it cuts through the noise and gets noticed.

Text messages have a 98% open rate, and most are read within minutes. That’s invaluable when you’re confirming appointments, sending last-minute reminders or prompting clients to upload documents. Unlike emails that get buried or phone calls that go to voicemail, texts are short, direct and convenient for both sides.

Texting also reduces the burden on your front office, freeing up staff to handle more complex tasks and enabling your firm to serve more clients without adding headcount. Fewer phone tag loops. Fewer no-shows. More automation.

With a platform like Textellent, which integrates with all major tax software, you can send automated campaigns and touchpoints without any manual effort on your end. Imagine having all your clients invited back based on the date of their appointment last tax season. The impact is huge, and this is just one of many! Whether you’re a solo practitioner or managing a multi-office operation, SMS can streamline client touchpoints during your busiest time of year.

An ideal platform will allow users to integrate with their tax preparation and practice management software, enable users to send individual messages directly from within the software and send automated messages based on their business rules.

For example:

• Inviting last year’s clients back
• Requesting online referrals and reviews from your current customers
• Schedule appointments with a convenient link
• Send reminders and allow rescheduling if needed
• Nudge clients to complete their organizer or submit missing documents
• Reach out to non-returning clients to win them back
• Follow up on returns needing signatures or final review

It’s simple, scalable and drives ROI while meeting clients’ expectations for fast and convenient communication.

Understanding the compliance landscape

Before texting clients, you must understand the rules for how businesses can use SMS. There are industry guidelines and federal regulations designed to protect consumers from spammy messages.

Here’s a quick breakdown of the three compliance issues tax pros should know:

• TCPA (Telephone Consumer Protection Act): This federal law requires businesses to get consent before texting clients. It requires that clients have the option to opt out at any time. If you’re sending marketing messages (like a reminder to book early for tax season), you’ll need explicit consent.
• CTIA (Cellular Telecommunications Industry Association): The CTIA sets best practices for SMS content and delivery. This includes factors such as frequency, opt-in/opt-out language and guaranteeing that messages aren’t deceptive/misleading. Violating these guidelines can result in your number being flagged or even blocked.
• 10DLC registration: This is the newer layer of compliance that applies to business texting in the U.S. If you’re sending texts through an application (like a texting platform) using a standard 10-digit phone number, carriers now require you to register that number. It’s designed to reduce spam and protect consumers while ensuring that your messages are delivered.

If you’re using a basic texting app, you may already be exposing yourself to compliance issues without knowing it. That’s why choosing a platform built for business use and set up for 10DLC compliance is the safest bet.

What “IRS-compliant” texting looks like

Let’s clear something up. The IRS doesn’t prohibit texting. It recognizes that clients expect fast communication. However, it does expect tax professionals to protect taxpayer information, regardless of the channel.

Text messages are great for:

• Confirming or rescheduling appointments
• Reminding clients to upload documents to a secure portal
• Letting clients know their return is ready or needs review
• Following up on e-signature requests

However, texts shouldn’t be used to send or receive sensitive information, such as Social Security numbers, banking details or attachments containing personal financial data. That kind of communication should be directed to your secure client portal.

For example, you can send a text reminder that a document is needed and include a secure link to the upload portal, keeping the sensitive exchange off SMS while still leveraging the speed and visibility of text messaging.

Another key factor? Archiving. Like emails or phone records, the IRS expects relevant SMS communication to be documented appropriately. A good platform will enable users to export records as PDFs.

Bottom line: texting can be a great way to connect with clients and stay compliant. You just need a tool that’s built for the tax world and understands how to keep things secure and above board.

Consent and opt-outs – getting it right

Before you send a single text, ensure your client has given you the green light. That means clear, documented consent, especially if your message has any marketing intent.

There are a few easy ways to collect consent:

• Include a texting opt-in checkbox on your new client intake form
• Ask clients to confirm via text or email that they’d like to receive updates via SMS
• Use online forms with a built-in opt-in toggle

Once you receive permission, you also need to give clients a way to change their minds. Include opt-out instructions periodically in your messages, like “Reply STOP to unsubscribe.”

An ideal platform will take care of the heavy lifting by:

• Allowing you to include opt-out language in your campaigns automatically
• Instantly honoring STOP requests and managing unsubscribes
• Maintaining a clear audit trail of when and how consent was given

Modernize without risk

SMS offers tax professionals a smarter way to grow by simplifying operations, boosting client satisfaction and reducing lost revenue from missed appointments.

By understanding the basics of TCPA, CTIA and 10DLC, and utilizing a texting platform designed for tax professionals, you can confidently incorporate SMS into your client communications. The right SMS tool handles consent, archiving and compliance so you can focus on your clients.

If you’re ready to modernize your practice this tax season, Textellent is here to help - try it free for 14 days.