Im on defualt so tax return and w2 return goes to fms debt collection for my studentloan its like total of 10k can those reduce my tax due for 1099

[VolvoGirl]

Reduce your tax due?  No!  You will still owe both.  They will keep any refunds you are suppose to get.  But if you have 1099Misc income and owe self employment tax you have to pay it or it will increase your offset.

[rjs]

Please keep your related questions in one thread. Do not post separate questions about the same issue. It's too confusing and hard to follow, and hard to see the whole picture, if information is scattered in multiple threads. If you want to add more information or post a follow-up question, add a reply to your original question.

Your tax return is the form you send to the government that shows your income and calculates your tax. The money the government sends back to you is your refund.

Your various types of income - W-2, 1099, unemployment, etc. - and your child tax credit are not treated separately. You don't get a refund for your W-2, and a separate refund for your children. All your income is added together on your tax return, and the tax is calculated on your total income, minus deductions. Your refund is based on your total tax, minus credits and whatever tax was withheld from your pay.

Any income that is paid to you has to be reported as income on your tax return, whether or not you actually received it. If your W-2 wages were garnisheed, or your unemployment benefits were applied to your student loan, it's still income to you. It's the same as if you received the money and wrote a check for loan payments. It's your income, and you used it to pay down your student loan. You just didn't have any choice about what you used the income for.

Part of what you paid towards your student loan was interest. You might qualify for the student loan interest deduction. The lender should have sent you a Form 1098-E at the end of the year showing how much interest you paid. Enter it in TurboTax, and TurboTax will figure out whether you qualify for the deduction. That will increase your refund. But the refund will still be offset to pay your past-due loan payments until you get up-to-date.

If you are having trouble figuring this all out, see if there is a local community organization that helps low-income people with tax problems, or see if there is a Low Income Taxpayer Clinic near you. If you can't find a local organization or LITC, maybe a friend or relative who is knowledgeable about taxes can help you.

[Carl]

No. When a qualified student loan goes into collection it's no longer a "qualified" student loan. The interest is no longer deductible and any fines, penalties, late fees and collection fees are never deductible under any circumstances.

If you have any refund due on your tax return, you can expect it to be garnished by the IRS and the amount garnished to be applied to the loan balance. If you are married and your spouse does not have a legal obligation to pay the debt, then you should still file a joint return along with IRS Form 8379 which is included in all versions of the TurboTax program. This is so that portion of any refund due that is a direct result of your spouse over-paying, will be refunded. Only that portion of the refund that can be directly attributed to you will be garnished and applied to your debt.

So if you file joint and do not include the Injured/Innocent Spouse Form 8379, the entire refund will be garnished and applied to the debt.

[rjs]

Correction

Carl and I discussed this in a back channel. You can claim the student loan interest deduction even though you are in default on the loan. Being in default does not prevent it from being a "qualified student loan." You can still deduct any interest that you actually paid, even if it was paid with money taken from your tax refund or a garnishment of other income.

What Carl was thinking of is that you cannot deduct interest that was added to the balance of the loan. When you miss loan payments, there is interest that you didn't pay. The lender might add that unpaid interest to the balance of the loan. It's called capitalized interest. You can't deduct that capitalized interest because you didn't pay it.