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The Surprise Taxable Income

Written by:
AmONE
Edited by:
Kristin Marino verified

debt settlement terminology If you’ve had a debt settlement last year, you can expect to receive Form 1099-C from the Internal Revenue Service (IRS).

This is because under current IRS regulations the amount that you saved by entering into a settlement agreement with a creditor or a debt collector is considered to be taxable income. If the amount you owed was reduced by $600 or more, you’re required to report that amount to the IRS.

Unfortunately, this may come as a surprise to many people who don’t realize that the money they didn’t receive from a debt settlement is taxable income. That savings can be a tax liability and the amount you owe on the balance reduction is based on your tax bracket.

There are certain kinds of debt forgiveness that are exempt from federal taxes. You should consult with a tax professional to ensure that you are paying the taxes you’re required to by law and that you don’t run into any post-April 15th surprises from the government.

According to CNBC, the IRS expects to receive 6.5 million of the Form 1099-C, Cancellation of Debt document this tax season, so if you benefited from a debt settlement in 2012, be on the look out for this form in your mailbox. For more information about debt settlement programs, contact AmONE today.

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Anyone can put together a group of lenders in a marketplace to offer people loans. We go beyond that. We not only partner with some of the best lenders around (like Citi, Rocket Loans, SoFi and so many more), we also work with partners who can help people like you go beyond a one-time loan. We connect you with the money programs you need to help you get real financial solutions in place that allow you to tackle your debt and money problems so you can move forward. Getting out from under debt to financial freedom is daunting and we're ready to help you every step of the way.

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