Do I have to pay income taxes on debt settlement?
I am contemplating using a debt settlement company to take care of credit cards and a medical bill. I heard that I might have to pay income tax on the saved amount of the negotiated debt.
The IRS considers $600 or more of forgiven debt as taxable income, but in some circumstances you may have to pay income tax on canceled debt that falls below $600. There are some exceptions--for example, if you’re insolvent at the time your debt is settled then you don’t have to report the forgiven debt as taxable income--but those exceptions have their own exceptions. Don’t make any final assumptions on your tax consequences until you speak with your attorney and look at an updated 1099-C form.