21 Sep My credit card debt was forgiven. Will I owe taxes on it?
Q. I owed a bunch on credit cards and I negotiated, and the banks lowered what I owed through a forgiveness program. Now I hear I could owe taxes. Is that true?
— Trying to get out
A. We’re glad you’re being proactive about your debt, but sometimes these moves can have unintended consequences.
When you pay less than you owe on a credit card through forgiveness, when the bank just takes a loss, it will usually issue you a 1099-c tax form.
This indicates the amount that was forgiven, and it’s treated as income by the taxing authorities.
So if you had $20,000 in credit card debt and your bank forgives $15,000 of it as part of a settlement, that $15,000 is treated as income.
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This story was originally published on Sept. 21, 2023.
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