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.
Get the working capital your business needs from Entrepreneur Lending, powered by CAN Capital. Learn More »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.