I am a college student in credit card debt. (what else is new) I was offered to settle my debt. I had a total of $3,300 dollars in debt and I offerd to pay 2,700. The difference was 663.00. I recenly received a 1099-c form because my balace owed was over 600 dollars, but only by $663 dollars!! I have the money now. Is there any way I can pay my bank this amount to avoid this 1099-c issue?:(

Hello w:

Why would you do that? Even if you owe tax (and you probably don't), the $663 is income and your tax on it might be 25% or so. Seems like it's a better deal to pay the IRS $165 rather than the bank $663.

excon

It's not a big deal. When you settle a credit card debt, the amount you didn't have to pay is considered income. It's just added into all of your other income. I did this before, and it made little difference at tax time. Just think of the money you saved. Sure there's a tiny bit of taxes on it, but take that $663 or so and open an IRA.

$663 is for debt cancellation. You must include the canceled amount in your income. Report this amount on Form 1040, line 21 (Other Income).

Agreed! Paying BoA back makes no sense once the debt is settled.

The extra tax is only a small part of the income, and, as noted, you may not even owe any taxes.

Just make sure you report it on Line #12 of Form 1040 and NOT on Schedule C.

Thanks For All Of Your Advice!!

Glad to help!