Beware of IRS tax bite that may follow canceled debt
If you thought your money woes ended last year when you settled that credit card, think again. Settling your debt with credit card companies may result in the forgiven debt being subject to income tax. Does that include you?
The New Year may have delivered an unwelcome surprise. Millions of Americans who opened their mailboxes in January found they have a tax debt they weren’t expecting.
For many consumers with debt problems, after the debt collector leaves their lives, the taxman arrives.
Many months after successfully resolving credit card debts, consumers are receiving 1099-C “cancellation of debt” tax notices in the mail. Why? The U.S. Internal Revenue Service considers forgiven or canceled debt as income. Creditors and debt collectors who agree to accept at least $600 less than the original balance are required by law to file 1099-C forms with the IRS and to send debtors notices as well. Taxpayers must report that “income” on their federal income tax returns.
Continue learning about how the IRS may view your forgiven debts by clicking here.