The IRS treats any debt you settle for less, where you save more than 600 dollars, as taxable income. You get a 1099c from the creditor you settled with the following January after completing your settlement the year prior.
Not everyone will owe taxes on settled debts. There is an insolvency test the IRS created that allows you to submit and show how you should not owe the tax.
This video provides an outline of the insolvency test.
Check out the next video I mentioned about how to delay having to pay the debt settlement tax: https://youtu.be/XKo0d2m_cMo
Check out my article with additional resources about taxes on forgiven debt here: https://consumerrecoverynetwork.com/debt-forgiveness-taxes-settled-credit-card/
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Michael Bovee started CRN in 2004 with a mission to provide people in need with detailed credit and debt help. The DebtBytes Channel is an extension of the CRN blog, and is dedicated to finding the debt relief option or strategy that works best for you.
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