Details of Public Law 119-21, section 70119 , One Big Beautiful Bill Act

The provision permanently provides a gross income exclusion for certain loan amounts that are discharged on account of death or disability after December 31, 2025. The exclusion was set to expire on December 31, 2025, as established under the Tax Cuts and Jobs Act (Public Law (P.L.) 115-97, section 11031) and American Rescue Plan Act of 2021 (P.L. 117-2, section 9675). Student loans that continue to be eligible for the exclusion are loans made by (1) the United States (or an instrumentality or agency thereof), (2) a State (or any political subdivision thereof), (3) certain tax-exempt public benefit corporations that control a State, county, or municipal hospital and whose employees have been deemed to be public employees under State law, (4) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on, and includes refinanced loans, (5) an organization exempt from tax under IRC section 501(a) for refinanced loans, or (6) private education loans (for this purpose, private education loan is defined in section 140(a) of the Consumer Protection Act).

The discharge of a loan as described above is excluded from gross income if the discharge was pursuant to the death or total and permanent disability of the student.

To be eligible for the income exclusion for discharged student loans, the taxpayer must have a valid social security number on the return for the taxable year. The omission of a valid social security number will be treated as a mathematical or clerical error.

California generally conforms, under the PITL, to the federal income tax rules relating to the cancellation of student loans under IRC section 108, as of the specified date of January 1, 2025, with modifications explained below.

In 2019, Assembly Bill 91 was chaptered to conform to Section 11031(a) of P.L. 115-97, relating to the income exclusion for loan discharges on account of death or total and permanent disability and applies to discharges of indebtedness after December 31, 2018. As a result, California conforms to the changes made by this provision for the gross income exclusion for student loan discharges due to the death or disability of the debtor for discharges after December 31, 2025, but does not conform to the change requiring the taxpayer to have a valid social security number on the return for the taxable year.

Additionally, regarding the omission of a taxpayer’s social security number, California has stand-alone law. Under the Administration of Franchise and Income Tax Law, FTB treats specified errors identified on the return during processing as math errors, which includes not providing a valid identification number as required to claim a dependent exemption tax credit, earned income tax credit, young child tax credit, or foster your tax credit.

The estimated revenue impact to conform to the above federal provisions would result in the following loss:

26/27 27/28 28/29 29/30 ($1,700,000) ($2,000,000) ($2,000,000) ($2,100,000)