1099-C
An IRS tax form issued when $600 or more of debt is cancelled — the forgiven amount may be taxable income.
Example
“The 1099-C from the credit card settlement added $8,000 to her taxable income.”
Memory Tip
1099-C — the tax bill that comes after debt forgiveness. Plan for it.
Why It Matters
Understanding Form 1099-C is critical because forgiven debt can create unexpected tax liability. Many people assume that having debt erased means they owe nothing, but the IRS may view it as income that you need to report and pay taxes on, potentially resulting in a significant tax bill.
Common Misconception
People often believe that if a creditor forgives their debt, they have no further financial obligations related to that debt. In reality, the forgiveness itself becomes a taxable event that must be reported to the IRS, and you may owe income taxes on the forgiven amount even though you did not receive cash.
In Practice
Suppose you have a credit card debt of $8,000 and the card issuer agrees to settle it for $2,000, forgiving the remaining $6,000. The creditor will issue you a Form 1099-C for $6,000, and you will need to report this as income on your tax return, potentially owing federal and state income taxes on that $6,000 depending on your tax bracket.
Etymology
IRS form number 1099-C — C standing for cancellation of debt.
Common Misspellings
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Related Terms
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See Also
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