Income tax; exclude forgiven, cancelled or discharged federal student loan debt under the PSLF Program from the definition of "gross income".

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To: Ways and Means
MISSISSIPPI LEGISLATURE REGULAR SESSION 2026

By: Representative Evans

HOUSE BILL NO. 842

AN ACT TO AMEND SECTION 27-7-15, MISSISSIPPI CODE OF 1972, TO 1
EXCLUDE FORGIVEN, CANCELLED OR DISCHARGED FEDERAL STUDENT LOAN 2
DEBT UNDER THE PUBLIC SERVICE LOAN FORGIVENESS PROGRAM FROM THE 3
DEFINITION OF "GROSS INCOME" FOR STATE INCOME TAX PURPOSES; AND 4
FOR RELATED PURPOSES. 5
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI: 6
SECTION 1. Section 27-7-15, Mississippi Code of 1972, is 7
amended as follows: 8
27-7-15. (1) For the purposes of this article, except as 9
otherwise provided, the term "gross income" means and includes the 10
income of a taxpayer derived from salaries, wages, fees or 11
compensation for service, of whatever kind and in whatever form 12
paid, including income from governmental agencies and subdivisions 13
thereof; or from professions, vocations, trades, businesses, 14
commerce or sales, or renting or dealing in property, or 15
reacquired property; also from annuities, interest, rents, 16
dividends, securities, insurance premiums, reinsurance premiums, 17
considerations for supplemental insurance contracts, or the 18
transaction of any business carried on for gain or profit, or 19
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gains, or profits, and income derived from any source whatever and 20
in whatever form paid. The amount of all such items of income 21
shall be included in the gross income for the taxable year in 22
which received by the taxpayer. The amount by which an eligible 23
employee's salary is reduced pursuant to a salary reduction 24
agreement authorized under Section 25-17-5 shall be excluded from 25
the term "gross income" within the meaning of this article. 26
(2) In determining gross income for the purpose of this 27
section, the following, under regulations prescribed by the 28
commissioner, shall be applicable: 29
(a) Dealers in property. Federal rules, regulations 30
and revenue procedures shall be followed with respect to 31
installment sales unless a transaction results in the shifting of 32
income from inside the state to outside the state. 33
(b) Casual sales of property. 34
(i) Prior to January 1, 2001, federal rules, 35
regulations and revenue procedures shall be followed with respect 36
to installment sales except they shall be applied and administered 37
as if H.R. 3594, the Installment Tax Correction Act of 2000 of the 38
106th Congress, had not been enacted. This provision will 39
generally affect taxpayers, reporting on the accrual method of 40
accounting, entering into installment note agreements on or after 41
December 17, 1999. Any gain or profit resulting from the casual 42
sale of property will be recognized in the year of sale. 43
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(ii) From and after January 1, 2001, federal 44
rules, regulations and revenue procedures shall be followed with 45
respect to installment sales except as provided in this 46
subparagraph (ii). Gain or profit from the casual sale of 47
property shall be recognized in the year of sale. When a taxpayer 48
recognizes gain on the casual sale of property in which the gain 49
is deferred for federal income tax purposes, a taxpayer may elect 50
to defer the payment of tax resulting from the gain as allowed and 51
to the extent provided under regulations prescribed by the 52
commissioner. If the payment of the tax is made on a deferred 53
basis, the tax shall be computed based on the applicable rate for 54
the income reported in the year the payment is made. Except as 55
otherwise provided in subparagraph (iii) of this paragraph (b), 56
deferring the payment of the tax shall not affect the liability 57
for the tax. If at any time the installment note is sold, 58
contributed, transferred or disposed of in any manner and for any 59
purpose by the original note holder, or the original note holder 60
is merged, liquidated, dissolved or withdrawn from this state, 61
then all deferred tax payments under this section shall 62
immediately become due and payable. 63
(iii) If the selling price of the property is 64
reduced by any alteration in the terms of an installment note, 65
including default by the purchaser, the gain to be recognized is 66
recomputed based on the adjusted selling price in the same manner 67
as for federal income tax purposes. The tax on this amount, less 68
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the previously paid tax on the recognized gain, is payable over 69
the period of the remaining installments. If the tax on the 70
previously recognized gain has been paid in full to this state, 71
the return on which the payment was made may be amended for this 72
purpose only. The statute of limitations in Section 27-7-49 shall 73
not bar an amended return for this purpose. 74
(c) Reserves of insurance companies. In the case of 75
insurance companies, any amounts in excess of the legally required 76
reserves shall be included as gross income. 77
(d) Affiliated companies or persons. As regards sales, 78
exchanges or payments for services from one to another of 79
affiliated companies or persons or under other circumstances where 80
the relation between the buyer and seller is such that gross 81
proceeds from the sale or the value of the exchange or the payment 82
for services are not indicative of the true value of the subject 83
matter of the sale, exchange or payment for services, the 84
commissioner shall prescribe uniform and equitable rules for 85
determining the true value of the gross income, gross sales, 86
exchanges or payment for services, or require consolidated returns 87
of affiliates. 88
(e) Alimony and separate maintenance payments. The 89
federal rules, regulations and revenue procedures in determining 90
the deductibility and taxability of alimony payments shall be 91
followed in this state. 92
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(f) Reimbursement for expenses of moving. There shall 93
be included in gross income (as compensation for services) any 94
amount received or accrued, directly or indirectly, by an 95
individual as a payment for or reimbursement of expenses of moving 96
from one (1) residence to another residence which is attributable 97
to employment or self-employment. 98
(3) In the case of taxpayers other than residents, gross 99
income includes gross income from sources within this state. 100
(4) The words "gross income" do not include the following 101
items of income which shall be exempt from taxation under this 102
article: 103
(a) The proceeds of life insurance policies and 104
contracts paid upon the death of the insured. However, the income 105
from the proceeds of such policies or contracts shall be included 106
in the gross income. 107
(b) The amount received by the insured as a return of 108
premium or premiums paid by him under life insurance policies, 109
endowment, or annuity contracts, either during the term or at 110
maturity or upon surrender of the contract. 111
(c) The value of property acquired by gift, bequest, 112
devise or descent, but the income from such property shall be 113
included in the gross income. 114
(d) Interest upon the obligations of the United States 115
or its possessions, or securities issued under the provisions of 116
the Federal Farm Loan Act of 1916, or bonds issued by the War 117
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Finance Corporation, or obligations of the State of Mississippi or 118
political subdivisions thereof. 119
(e) The amounts received through accident or health 120
insurance as compensation for personal injuries or sickness, plus 121
the amount of any damages received for such injuries or such 122
sickness or injuries, or through the War Risk Insurance Act, or 123
any law for the benefit or relief of injured or disabled members 124
of the military or naval forces of the United States. 125
(f) Income received by any religious denomination or by 126
any institution or trust for moral or mental improvements, 127
religious, Bible, tract, charitable, benevolent, fraternal, 128
missionary, hospital, infirmary, educational, scientific, 129
literary, library, patriotic, historical or cemetery purposes or 130
for two (2) or more of such purposes, if such income be used 131
exclusively for carrying out one or more of such purposes. 132
(g) Income received by a domestic corporation which is 133
"taxable in another state" as this term is defined in this 134
article, derived from business activity conducted outside this 135
state. Domestic corporations taxable both within and without the 136
state shall determine Mississippi income on the same basis as 137
provided for foreign corporations under the provisions of this 138
article. 139
(h) In case of insurance companies, there shall be 140
excluded from gross income such portion of actual premiums 141
received from an individual policyholder as is paid back or 142
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credited to or treated as an abatement of premiums of such 143
policyholder within the taxable year. 144
(i) Income from dividends that has already borne a tax 145
as dividend income under the provisions of this article, when such 146
dividends may be specifically identified in the possession of the 147
recipient. 148
(j) Amounts paid by the United States to a person as 149
added compensation for hazardous duty pay as a member of the Armed 150
Forces of the United States in a combat zone designated by 151
Executive Order of the President of the United States. 152
(k) Amounts received as retirement allowances, 153
pensions, annuities or optional retirement allowances paid under 154
the federal Social Security Act, the Railroad Retirement Act, the 155
Federal Civil Service Retirement Act, or any other retirement 156
system of the United States government, retirement allowances paid 157
under the Mississippi Public Employees' Retirement System, 158
Mississippi Highway Safety Patrol Retirement System or any other 159
retirement system of the State of Mississippi or any political 160
subdivision thereof. The exemption allowed under this paragraph 161
(k) shall be available to the spouse or other beneficiary at the 162
death of the primary retiree. 163
(l) Amounts received as retirement allowances, 164
pensions, annuities or optional retirement allowances paid by any 165
public or governmental retirement system not designated in 166
paragraph (k) or any private retirement system or plan of which 167
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the recipient was a member at any time during the period of his 168
employment. Amounts received as a distribution under a Roth 169
Individual Retirement Account shall be treated in the same manner 170
as provided under the Internal Revenue Code of 1986, as amended. 171
The exemption allowed under this paragraph (l) shall be available 172
to the spouse or other beneficiary at the death of the primary 173
retiree. 174
(m) National Guard or Reserve Forces of the United 175
States compensation not to exceed the aggregate sum of Five 176
Thousand Dollars ($5,000.00) for any taxable year through the 2005 177
taxable year, and not to exceed the aggregate sum of Fifteen 178
Thousand Dollars ($15,000.00) for any taxable year thereafter. 179
(n) Compensation received for active service as a 180
member below the grade of commissioned officer and so much of the 181
compensation as does not exceed the maximum enlisted amount 182
received for active service as a commissioned officer in the Armed 183
Forces of the United States for any month during any part of which 184
such members of the Armed Forces (i) served in a combat zone as 185
designated by Executive Order of the President of the United 186
States or a qualified hazardous duty area as defined by federal 187
law, or both; or (ii) was hospitalized as a result of wounds, 188
disease or injury incurred while serving in such combat zone. For 189
the purposes of this paragraph (n), the term "maximum enlisted 190
amount" means and has the same definition as that term has in 26 191
USCS 112. 192
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(o) The proceeds received from federal and state 193
forestry incentive programs. 194
(p) The amount representing the difference between the 195
increase of gross income derived from sales for export outside the 196
United States as compared to the preceding tax year wherein gross 197
income from export sales was highest, and the net increase in 198
expenses attributable to such increased exports. In the absence 199
of direct accounting, the ratio of net profits to total sales may 200
be applied to the increase in export sales. This paragraph (p) 201
shall only apply to businesses located in this state engaging in 202
the international export of Mississippi goods and services. Such 203
goods or services shall have at least fifty percent (50%) of value 204
added at a location in Mississippi. 205
(q) Amounts paid by the federal government for the 206
construction of soil conservation systems as required by a 207
conservation plan adopted pursuant to 16 USCS 3801 et seq. 208
(r) The amount deposited in a medical savings account, 209
and any interest accrued thereon, that is a part of a medical 210
savings account program as specified in the Medical Savings 211
Account Act under Sections 71-9-1 through 71-9-9; provided, 212
however, that any amount withdrawn from such account for purposes 213
other than paying eligible medical expense or to procure health 214
coverage shall be included in gross income. 215
(s) Amounts paid by the Mississippi Soil and Water 216
Conservation Commission from the Mississippi Soil and Water 217
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Cost-Share Program for the installation of water quality best 218
management practices. 219
(t) Dividends received by a holding corporation, as 220
defined in Section 27-13-1, from a subsidiary corporation, as 221
defined in Section 27-13-1. 222
(u) Interest, dividends, gains or income of any kind on 223
any account in the Mississippi Affordable College Savings Trust 224
Fund, as established in Sections 37-155-101 through 37-155-125, to 225
the extent that such amounts remain on deposit in the MACS Trust 226
Fund or are withdrawn pursuant to a qualified withdrawal, as 227
defined in Section 37-155-105. 228
(v) Interest, dividends or gains accruing on the 229
payments made pursuant to a prepaid tuition contract, as provided 230
for in Section 37-155-17. 231
(w) Income resulting from transactions with a related 232
member where the related member subject to tax under this chapter 233
was required to, and did in fact, add back the expense of such 234
transactions as required by Section 27-7-17(2). Under no 235
circumstances may the exclusion from income exceed the deduction 236
add-back of the related member, nor shall the exclusion apply to 237
any income otherwise excluded under this chapter. 238
(x) Amounts that are subject to the tax levied pursuant 239
to Section 27-7-901, and are paid to patrons by gaming 240
establishments licensed under the Mississippi Gaming Control Act. 241
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(y) Amounts that are subject to the tax levied pursuant 242
to Section 27-7-903, and are paid to patrons by gaming 243
establishments not licensed under the Mississippi Gaming Control 244
Act. 245
(z) Interest, dividends, gains or income of any kind on 246
any account in a qualified tuition program and amounts received as 247
distributions under a qualified tuition program shall be treated 248
in the same manner as provided under the United States Internal 249
Revenue Code, as amended. For the purposes of this paragraph (z), 250
the term "qualified tuition program" means and has the same 251
definition as that term has in 26 USCS 529. 252
(aa) The amount deposited in a health savings account, 253
and any interest accrued thereon, that is a part of a health 254
savings account program as specified in the Health Savings 255
Accounts Act created in Sections 83-62-1 through 83-62-9; however, 256
any amount withdrawn from such account for purposes other than 257
paying qualified medical expenses or to procure health coverage 258
shall be included in gross income, except as otherwise provided by 259
Sections 83-62-7 and 83-62-9. 260
(bb) Amounts received as qualified disaster relief 261
payments shall be treated in the same manner as provided under the 262
United States Internal Revenue Code, as amended. 263
(cc) Amounts received as a "qualified Hurricane Katrina 264
distribution" as defined in the United States Internal Revenue 265
Code, as amended. 266
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(dd) Amounts received by an individual which may be 267
excluded from income as foreign earned income for federal income 268
tax purposes. 269
(ee) Amounts received by a qualified individual, 270
directly or indirectly, from an employer or nonprofit housing 271
organization that are qualified housing expenses associated with 272
an employer-assisted housing program. For purposes of this 273
paragraph (ee): 274
(i) "Qualified individual" means any individual 275
whose household income does not exceed one hundred twenty percent 276
(120%) of the area median gross income (as defined by the United 277
States Department of Housing and Urban Development), adjusted for 278
household size, for the area in which the housing is located. 279
(ii) "Nonprofit housing organization" means an 280
organization that is organized as a not-for-profit organization 281
under the laws of this state or another state and has as one of 282
its purposes: 283
1. Homeownership education or counseling; 284
2. The development of affordable housing; or 285
3. The development or administration of 286
employer-assisted housing programs. 287
(iii) "Employer-assisted housing program" means a 288
separate written plan of any employer (including, without 289
limitation, tax-exempt organizations and public employers) for the 290
exclusive benefit of the employer's employees to pay qualified 291
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housing expenses to assist the employer's employees in securing 292
affordable housing. 293
(iv) "Qualified housing expenses" means: 294
1. With respect to rental assistance, an 295
amount not to exceed Two Thousand Dollars ($2,000.00) paid for the 296
purpose of assisting employees with security deposits and rental 297
subsidies; and 298
2. With respect to homeownership assistance, 299
an amount not to exceed the lesser of Ten Thousand Dollars 300
($10,000.00) or six percent (6%) of the purchase price of the 301
employee's principal residence that is paid for the purpose of 302
assisting employees with down payments, payment of closing costs, 303
reduced interest mortgages, mortgage guarantee programs, mortgage 304
forgiveness programs, equity contribution programs, or 305
contributions to homebuyer education and/or homeownership 306
counseling of eligible employees. 307
(ff) For the 2010 taxable year and any taxable year 308
thereafter, amounts converted in accordance with the United States 309
Internal Revenue Code, as amended, from a traditional Individual 310
Retirement Account to a Roth Individual Retirement Account. The 311
exemption allowed under this paragraph (ff) shall be available to 312
the spouse or other beneficiary at the death of the primary 313
retiree. 314
(gg) Amounts received for the performance of disaster 315
or emergency-related work as defined in Section 27-113-5. 316
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(hh) The amount deposited in a catastrophe savings 317
account established under Sections 27-7-1001 through 27-7-1007, 318
interest income earned on the catastrophe savings account, and 319
distributions from the catastrophe savings account; however, any 320
amount withdrawn from a catastrophe savings account for purposes 321
other than paying qualified catastrophe expenses shall be included 322
in gross income, except as otherwise provided by Sections 323
27-7-1001 through 27-7-1007. 324
(ii) Interest, dividends, gains or income of any kind 325
on any account in the Mississippi Achieving a Better Life 326
Experience (ABLE) Trust Fund, as established in Chapter 28, Title 327
43, to the extent that such amounts remain on deposit in the ABLE 328
Trust Fund or are withdrawn pursuant to a qualified withdrawal, as 329
defined in Section 43-28-11. 330
(jj) Subject to the limitations provided under Section 331
27-7-1103, amounts deposited into a first-time homebuyer savings 332
account and any interest or other income earned attributable to an 333
account and monies or funds withdrawn or distributed from an 334
account for the payment of eligible costs by or on behalf of a 335
qualified beneficiary; however, any monies or funds withdrawn or 336
distributed from a first-time homebuyer savings account for any 337
purpose other than the payment of eligible costs by or on behalf 338
of a qualified beneficiary shall be included in gross income. For 339
the purpose of this paragraph (jj), the terms "first-time 340
homebuyer savings account," "eligible costs" and "qualified 341
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beneficiary" mean and have the same definitions as such terms have 342
in Section 27-7-1101. 343
(kk) Amounts paid by an agricultural disaster program 344
as compensation to an agricultural producer, cattle farmer or 345
cattle rancher who has suffered a loss as the result of a disaster 346
or emergency, including, but not limited to, the following United 347
States Department of Agriculture programs: 348
(i) Livestock Forage Disaster Program; 349
(ii) Livestock Indemnity Program; 350
(iii) Emergency Assistance for Livestock, Honey 351
Bees and Farm-raised Fish Program; 352
(iv) Emergency Conservation Program; 353
(v) Noninsured Crop Disaster Assistance Program; 354
(vi) Pasture, Rangeland, Forage Pilot Insurance 355
Program; 356
(vii) Annual Forage Pilot Program; 357
(viii) Livestock Risk Protection Insurance 358
Program; and 359
(ix) Livestock Gross Margin Insurance Plan. 360
(ll) Amounts received as advances and/or grants under 361
the federal Coronavirus Aid, Relief, and Economic Security Act, 362
the Consolidated Appropriations Act of 2021 and the American 363
Rescue Plan Act. 364
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(mm) Any and all cancelled indebtedness provided for 365
under the Coronavirus Aid, Relief, and Economic Security Act and 366
the Consolidated Appropriations Act of 2021. 367
(nn) Amounts received as payments under Section 368
27-3-85. 369
(oo) Amounts received as grants under the 2020 COVID-19 370
Mississippi Business Assistance Act. 371
(pp) Amounts received as grants under Section 57-1-521. 372
( * * *qq) Amounts received as grants under the 373
Shuttered Venue Operators Grant Program and Restaurant 374
Revitalization Fund authorized by the Economic Aid to Hard-Hit 375
Small Businesses, Nonprofits, and Venues Act, and amended by the 376
American Rescue Plan Act. 377
( * * *rr) Amounts received as grants under the 378
Mississippi Agriculture Stabilization Act. 379
(ss) Any and all forgiven, cancelled or discharged 380
federal student loan debt under the Public Service Loan 381
Forgiveness Program. 382
(5) Prisoners of war, missing in action-taxable status. 383
(a) Members of the Armed Forces. Gross income does not 384
include compensation received for active service as a member of 385
the Armed Forces of the United States for any month during any 386
part of which such member is in a missing status, as defined in 387
paragraph (d) of this subsection, during the Vietnam Conflict as a 388
result of such conflict. 389
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(b) Civilian employees. Gross income does not include 390
compensation received for active service as an employee for any 391
month during any part of which such employee is in a missing 392
status during the Vietnam Conflict as a result of such conflict. 393
(c) Period of conflict. For the purpose of this 394
subsection, the Vietnam Conflict began February 28, 1961, and ends 395
on the date designated by the President by Executive Order as the 396
date of the termination of combatant activities in Vietnam. For 397
the purpose of this subsection, an individual is in a missing 398
status as a result of the Vietnam Conflict if immediately before 399
such status began he was performing service in Vietnam or was 400
performing service in Southeast Asia in direct support of military 401
operations in Vietnam. "Southeast Asia," as used in this 402
paragraph, is defined to include Cambodia, Laos, Thailand and 403
waters adjacent thereto. 404
(d) "Missing status" means the status of an employee or 405
member of the Armed Forces who is in active service and is 406
officially carried or determined to be absent in a status of (i) 407
missing; (ii) missing in action; (iii) interned in a foreign 408
country; (iv) captured, beleaguered or besieged by a hostile 409
force; or (v) detained in a foreign country against his will; but 410
does not include the status of an employee or member of the Armed 411
Forces for a period during which he is officially determined to be 412
absent from his post of duty without authority. 413
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(e) "Active service" means active federal service by an 414
employee or member of the Armed Forces of the United States in an 415
active duty status. 416
(f) "Employee" means one who is a citizen or national 417
of the United States or an alien admitted to the United States for 418
permanent residence and is a resident of the State of Mississippi 419
and is employed in or under a federal executive agency or 420
department of the Armed Forces. 421
(g) "Compensation" means (i) basic pay; (ii) special 422
pay; (iii) incentive pay; (iv) basic allowance for quarters; (v) 423
basic allowance for subsistence; and (vi) station per diem 424
allowances for not more than ninety (90) days. 425
(h) If refund or credit of any overpayment of tax for 426
any taxable year resulting from the application of this subsection 427
(5) is prevented by the operation of any law or rule of law, such 428
refund or credit of such overpayment of tax may, nevertheless, be 429
made or allowed if claim therefor is filed with the Department of 430
Revenue within three (3) years after the date of the enactment of 431
this subsection. 432
(i) The provisions of this subsection shall be 433
effective for taxable years ending on or after February 28, 1961. 434
(6) A shareholder of an S corporation, as defined in Section 435
27-8-3(1)(g), shall take into account the income, loss, deduction 436
or credit of the S corporation only to the extent provided in 437
Section 27-8-7(2). 438
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ST: Income tax; exclude forgiven, cancelled or
discharged federal student loan debt under the
PSLF Program from the definition of "gross
income".
SECTION 2. Nothing in this act shall affect or defeat any 439
claim, assessment, appeal, suit, right or cause of action for 440
taxes due or accrued under the income tax laws before the date on 441
which this act becomes effective, whether such claims, 442
assessments, appeals, suits or actions have been begun before the 443
date on which this act becomes effective or are begun thereafter; 444
and the provisions of the income tax laws are expressly continued 445
in full force, effect and operation for the purpose of the 446
assessment, collection and enrollment of liens for any taxes due 447
or accrued and the execution of any warrant under such laws before 448
the date on which this act becomes effective, and for the 449
imposition of any penalties, forfeitures or claims for failure to 450
comply with such laws. 451
SECTION 3. This act shall take effect and be in force from 452
and after January 1, 2026. 453