This form could mean higher tax liability for you.
If you've already filed your tax return, and get a form 1099-C in the mail afterwards, it might mean that you didn't report the correct amount of taxable income. Here's what you need to know about the 1099-C, whether or not it will affect your income, and how to correct your tax return to reflect this new information.
What is form 1099-C?
Form 1099-C is used to account for canceled debt, which can result from several situations, such as a home foreclosure or short sale, or a forgiven student loan.
What many people don't realize is that canceled debt counts as income in many cases, and needs to be declared as income. And, while most canceled debts are technically subject to tax, a creditor is only required to send a 1099-C if it forgives more than $600 in debt during one tax year.
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Does the cancelled debt count as income?
Not all forgiven debt is counted as income, so before you start to panic, make sure the 1099-C you received will actually have an impact on your taxable income. You can find a full description of the various exceptions in IRS publication 4681(link opens PDF), but here are one of the common forms of cancelled debt that won't increase your taxable income:
- Forgiven student loan debt, if the forgiveness is based on the debtor working for a certain type of employer, and the loan was made by a governmental source, educational institution, or non-profit organization
- Debt cancelled in a bankruptcy
- If you were insolvent at the time the debt was cancelled
- Any forgiven mortgage debt, up to $1 million (single) or $2 million (married), including mortgage debt forgiven during a restructuring.
Filing an amended tax return
Regardless of whether or not the 1099-C will increase your taxable income, you should be aware that the IRS receives a copy of this form as well, so you should fill out an amended tax return to reflect the changes. If you're claiming one of the allowed exclusions, you still need to tell the IRS why.
To file an amended return, start with IRS form 1040X(link opens PDF). Adjust your taxable income to include the amount of forgiven debt, and explain in part III how you received a 1099-C after you originally filed your return. If you're claiming that the canceled debt shouldn't count as taxable income, you'll also need to file a form 982(link opens PDF) to explain the reason.
Unfortunately, you can't e-file an amended tax return. After you fill out the necessary paperwork, you'll need to mail it to the IRS center listed on the amended return instructions(link opens PDF).
If the 1099-C results in an increase in your taxable income, the amended return form and instructions will guide you through figuring out how much you owe. You can pay any extra tax by mail, online, or by phone, and it's in your best interest to do so as soon as possible -- interest begins to accumulate on any owed balance retroactive to the due date of the tax return, even if you received the necessary tax forms afterward.
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FAQs
Regardless of whether or not the 1099-C will increase your taxable income, you should be aware that the IRS receives a copy of this form as well, so you should fill out an amended tax return to reflect the changes. If you're claiming one of the allowed exclusions, you still need to tell the IRS why.
What happens if I get a 1099 after I already filed my taxes? ›
If you file your return and later receive a Form 1099 for income that you did not fully include on that return, you should report the income and take credit for any income tax withheld by filing Form 1040X, “Amended U.S. Individual Income Tax Return.”
Do I still owe debt if I get a 1099-C? ›
In this case, the 1099-C you received will show the remainder of the balance you didn't pay. You will not have to pay this back, but you may have to claim it as taxable income to the Internal Revenue Service (IRS).
How to prove insolvency for 1099-C? ›
Send a simple letter to the IRS with a completed IRS form 982. he form is located at the IRS' website here: https://www.irs.gov/pub/irs-pdf/f982.pdf In the letter you will include a Statement of Assets and Liabilities, which can be handwritten on a piece of notebook paper if necessary.
Will the IRS catch a missing 1099-C? ›
The IRS employs various methods to detect discrepancies in tax reporting, including the absence of 1099 forms. While the IRS does not catch every missing 1099 immediately, their sophisticated systems and data-matching capabilities make it likely that discrepancies will be identified over time.
How to fight a 1099-C? ›
Contact the creditor if you receive a 1099-C reflecting incorrect information. If a creditor continues to attempt to collect the debt after you receive a 1099-C, the debt may not have been canceled and you may not have income from a canceled debt. Verify your specific situation with the creditor.
Is there a statute of limitations on a 1099-C? ›
Although there is a statute of limitations on old debt, there's no statute of limitations on 1099-C forms—which means that lenders and debt collectors occasionally send out 1099-C forms on very old debts. If you receive a 1099-C on an old debt, your best option is to contact a CPA or tax professional.
How much tax do you pay on discharged debt? ›
When this happens, the IRS won't tax the canceled debts as income. Your forgiven debt includes tax-deductible interest. If a lender forgives a business loan or mortgage, you don't need to report the interest as income because it would have been deductible anyway.
How much taxes are on a 1099C? ›
That depends on your overall taxable income. Your income, including amounts listed on your 1099-Cs, gets taxed at the normal progressive rate, which ranges from 10% to 37%. How much tax you will owe depends on your tax bracket, filing status, credits, and deductions.
What are the rules for 1099-C? ›
Issuers only send this form if the amount is $600 or more, but it is still your responsibility to report any amount that applies as a canceled or forgiven debt on your annual tax return. The amount listed in Box 1 of Form 1099-C must be entered on the “Other income” line of Form 1040 or 1040-SR.
Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice.
What is an identifiable event for 1099-C? ›
An “identifiable event” generally triggering a Form 1099-C reporting obligation includes: (1) a bankruptcy discharge; (2) a cancellation/extinguishment that renders a debt unenforceable in a receivership, foreclosure, or similar proceeding; (3) a cancellation upon the expiration of the statute of limitations for ...
Does cancellation of debt affect your tax return? ›
Generally, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
How to remove cancelled debt from credit report? ›
How to Remove Canceled Debt From Your Credit Report. In general, you can't get discharged debt removed from your credit report unless the information is inaccurate. In that case, you have the right to file a dispute with the credit reporting agencies.
Is a charge off a cancellation of debt? ›
A charge-off means a company has written off a debt because it does not believe it will receive the money that it's owed. A delinquent borrower is still responsible for paying debt that is a charge-off.
Can I add a 1099-INT after filing? ›
I received a Form 1099-INT after I filed my return. What do I do? If you received a Form 1099-INT after filing your return, you should file an amended federal and State return.
