If i settled a debt in full, why did I get a 1099-C for the remainder of the amount?

[melconnor]

I settled a debt in full for an amount less than the amount owed thru a debt collection company. I received a notice confirming the debt was settled in full, then I received a 1099-C for the remainder of the amount that I did not pay from the credit card company. What is the point of settling a debt if I have to claim the rest of the balance as income? I thought it was settled in full and I wouldn't have to worry about it anymore. Do I really have to claim the difference as income?

[MinhT · Accepted solution]

I understand your concern.

In fact, when you settle in full a debt by paying a smaller amount, the difference is canceled debt. And according to the IRS, canceled debt is generally taxable subject to a number of exceptions.

Unfortunately, canceled debt from a credit card company is not one of those exceptions. And the canceled debt is taxable income and have to be reported on your tax return.

Please read the following IRS document for more information:

https://www.irs.gov/taxtopics/tc431.html