Form 1099-C is a tax form. It’s called the “Cancellation of Debt” form because it’s issued whenever a business (like a bank or a credit card company) cancels or forgives a debt.
If you have debt forgiven, for example after settling with a creditor, the creditor will send this form to you at some point. All you have to do is keep an eye on the mail and if you get one, put it aside until it comes time to file your tax return.
What’s the purpose of this form?
The form is how businesses let the IRS know that they have cancelled a debt. You’ll need it when you file your tax return.
How does it affect me?
Tax law says that “debt forgiven” is like income to the person who no longer has to pay the debt. It increases the “income” that your tax rate is based on. That’s why your tax preparer needs any 1099-C forms you may receive.
If the debt was discharged in bankruptcy,...
… the debt forgiveness is still recorded by the creditor. If you receive a 1099-C you have to disclose it as part of your tax filing. But, you won’t have to worry about having to pay income taxes on the forgiven debt because there’s a specific exception for debt that was discharged in bankruptcy.
Filing Form 982 along with your tax return lets the IRS know this exception applies to you.
More Information from the Internal Revenue Service:
|General Information on Cancellation of Debt Income||About Form 1099-C||About Form 982|
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