Do I need to declare money paid back that was borrowed? We agreed on a lesser amount of $1000.00. Is this considered income that I need to declare on my taxes?

Are you the borrower or the lender?

When you say "money paid back" do you mean that the borrower repaid part or all of the money that he owed, or do you mean that the lender forgave part or all of the loan, so that the borrower did not have to pay back the full amount?

If the lender forgave part of the loan, the amount that was forgiven is income to the borrower. The borrower has to report it as canceled debt income on his tax return for the year that it was forgiven.