If you recently received a 1099-C in the mail from a creditor, you may be wondering if you will have to pay taxes on the amount listed.
Often, creditors will report the amount of a debt forgiven to the IRS. The IRS considers forgiven or canceled debt as income. This may happen to you after resolving a credit card debt or if you have a debt that has been charged-off or forgiven by the creditor. If this is the case, you may receive a 1099-C “cancellation of debt” notice. This most usually happens when your creditor and you make a settlement for at least $600 less than the original balance. In this scenario, the creditor is required by law to file the cancellation of debt notice with the IRS.
If you receive this form, don’t panic! It may not affect you. It is hard to determine whether you will be affected by this or not without discussing it with a certified tax professional. For example, you may be insolvent. This simply means that the amount of debt owed is more than the total of your income and wealth. Consult a tax professional to find out how settling debts may affect you.
