A few people online have stated that if a bill collector agrees to forgive the interest on a loan, and only requires that I pay monthly on the principal debt, I will eventually receive a 1099 form for the amount over $600. However, the collector says since I am paying off the original amount due(principal), minus the interest and late fees, I will not receive a 1099 form since they are willing to settle for payment on the principal. Is this possible for a collector to do? Or is this a trick, and I'll receive a 1099 form eventually? I will be making low monthly payments on the debt for the next few years and I'm currently on a fixed income without valuable assets.
2006-12-12 17:17:59 · 4 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
When a debt collector forgives a debt, they will send you a 1099-C. Cancellation of debt. They typically send that when the debt is over $600, but I have seen it for less. This amount would be reported as income on line 21, miscellaneous income of the Form 1040.
2006-12-15 02:45:12 · answer #1 · answered by D.M. C 2 · 0⤊ 0⤋
The IRS issued a Form 8919-Uncollected Social Security and Medicare on Wages. This form allows a taxpayer who believes they are not a contractor to save themselves the matching SS and Med. Form 8919 itself is fairly simple and just asks for the employer's information, whether a 1099Misc was issued and calculates the employee's SS and Med payment to be transfered to their 1040. What is not simple is the "reason code" section. For each employer a taxpayer lists, they have to identify why they are using the 8919. Have they received a determination letter from the IRS, were they classified as an employee before but now being treated as contract labor, are others doing the same work being treated as employees? But what if the taxpayer does not meet any of the reasons? The final reason is that an SS-8 has been filed with the IRS a but no determination letter received. Bottom line, if a taxpayer wants to use Form 8919 they will have to file a SS-8 and that is no easy matter. It is a 3 page form asking the taxpayer to outline their working relationship with the employer. Who controls what; time, job duties, equipment, training, etc. It will be interesting to see if some taxpayers decide to pay the extra tax to keep from filling out the SS-8. The need for Form 8919 and SS-8 is to cut the Tax Gap by finding who may be paying employees as contractors so further investigation can targeted where it might do the most good. Hopefully, investigations will also identify those long term non-filers. The taxpayers who want to be paid "under the table" so that they don't have to pay taxes like an employee does. The problem is that someone has to start the process by submitting a SS-8 and that could mean fallout from the employer they turned in or others in that business. They have to be willing to be a whistleblower.
2016-05-23 17:03:31 · answer #2 · answered by Anonymous · 0⤊ 0⤋
I would say that the loan is carried on the books & when it is taken off the books the loan company as to answer for the change in numbers for tax purpose's.
As it stands it seems that they will not be getting any interest from you so they won't have to pay taxes on that part.
If they are giving you credit for interest that they have all ready collected from you that could be a loss for them & a gain for you.
In that case they may well send you a 1099.
If they are only going to except principal & no interest from this point on, I don't see any need to worry.
2006-12-12 17:38:01 · answer #3 · answered by Floyd B 5 · 0⤊ 0⤋
No, forgiveness of the interest is not income. If they forgive any of the debt then you could have income.
2006-12-12 22:01:33 · answer #4 · answered by waggy_33 6 · 0⤊ 0⤋