In short, you’ll have to pay taxes on the extra income. That might mean your refund is reduced or that you owe more taxes than you would otherwise. In cases where the 1099-C canceled debt falls under an IRS exclusion—which means you don’t have to pay taxes on all or some of the income—you still may need to file a form.

How long do I have to file a 1099-C?

You will not have to pay this back, but you may have to claim it as income to the IRS. However, in 2016, an IRS rule allowed debt collectors to file a 1099-C after 36 months of no payment. In this event, the account is still delinquent, but the debt hasn’t been forgiven, so the lender may still try to collect.

What do you need to know about 1099-C tax form?

Form 1099-C is used to report canceled debt, which is generally considered taxable income, to the IRS.

When do you have to file a 1099-C debt cancellation?

Lenders and creditors must send a 1099-C to the IRS and to borrowers if $600 or more in debt was canceled or forgiven. 1  In most cases canceled debt counts as income. If you receive Form 1099-C, you must report the amount on your income tax return on the “Other income” line of your Form 1040 or 1040-SR.

Can a person avoid paying taxes on a 1099?

Avoid Paying Taxes On That 1099 Form, Legally. It’s tax time and the mails are full of IRS form 1099. If you managed a short sale of your property; suffered a foreclosure; filed bankruptcy; or settled your debt for less than you owed, you probably got a 1099.

Do you have to file Form 982 if you get a 1099?

To establish your right to exclude the money shown on the 1099, you have to file IRS form 982. If you don’t file the form and claim the exception, the IRS has no way to know that, despite the debt forgiveness, there is no tax payable. Form 982 lays out the possible reasons forgiven debt might not be taxable.