My school forgave a portion of my educational debt in exchange for my working in a non-profit setting (a "work-related exemption"). Mechanically, this was accomplished by my school issuing me a new 1 year loan, the proceeds of which were to be used to pay off federal loans, after which my school discharged the 1 year loan. As I understand IRS publication 4681, this debt forgiveness is not taxable under the following language: "To qualify for the work-related exclusion, your loan must be made by a qualified lender to assist you in attending an eligible educational organization described in section 170(b)(1)(A)(ii) and must be pursuant to a provision in the student loan that all or part of the debt will be canceled if you work for a certain period of time, in certain professions, and for any of a broad class of employers."
My debt cancellation meets these criteria, as it was issued in exchange for working in a health care non-profit for the duration of the loan. However, I did receive a 1099-NEC listing the amount I received. Do I report this somewhere else? Do I leave it off my return? When I input this under 1099-NEC in the turbotax software, a large tax burden is calculated.
Talk to the school about this.
A 1099-NEC tells the IRS you are Self-Employed and the income was paid as Non-Employee Compensation.
There is no way to report it any other way without raising a red flag with the IRS.
You can leave it off, but the IRS will inquire about it sooner or later.