Do you pay taxes on a settlement?

[merime]

I read somewhere on here that if you settle with a CC debt, that the government considers it income and it is taxable. Is that true? Not that I am even thinking of settling, but think that is crazy. How could anyone afford a settlement. thank you for any answers.

[HHM]

Yes, sort of

If you settle a debt (any debt), the IRS treats the unpaid portion as taxable income (think about it, you borrowed real money, used it for something, and now don't pay it back, that is an income event).

However, whether you actually "pay" tax is a different issue. There are some exceptions to paying income tax on forgiven debt. Note, debt discharged in bankruptcy is NOT taxable income.

[AngelinaCatHub]

Hello 'merime'. Mrs. and I have been missing you. You be well? PM any time you wish. 'Hub

[treehugger1]

Go to irs.gov and search for debt forgiveness under 1099. There is a worksheet form that can be used ot determine if you are/were insolvent. Keep in mind that any pension and/or retirement funds/annuities are considered assets.

[merime]

The 1099 was mentioned by a debt collector. At this point I really do not see a reason to settle. With nothing to lose, there is nothing to gain. No, I have no retirement or pension. No family at all except children. Last year when I filled out my W2 , I declared 3 , so the max would be taken out. I photocopied it before handing it to HR. When I saw that they were not taking out federal , I freaked!! HR offered their apologizes, OPPs, our bad. Somehow , I always manage to get the short end of the stick.