Received 1099-C for Cancelled Debt
Posted by ggnore27@reddit | studentloandefaulters | View on Reddit | 70 comments
Quick question so I understand the implications. Had $70k of student debt. Statute of limitations went by 5 years ago. I'm now receiving a 1099-C form for $53k. Does that mean I would have to pay taxes on that? Should I speak with a lawyer or an accountant to see if I need to claim this?
stuntswagmaster69@reddit
Similar case, and I received another letter today from Discover Student loans stating, "We incorrectly send you IRS Form 1099-C for 2024, you should not have received Form 1099-C for the amount of nontacle student loan dent that was discharged between 2021 and 2025.."
They sent this letter after I've completely filed my taxes. I'm very confused - are they going to send a different Form? Was this a mistake on their end? The letter doesn't answer any of those questions.
No_Adeptness3132@reddit
Hi,
Has anyone contacted the IRS directly about this?
I spent 3–4 hours at H&R Block with my advisor, called the IRS twice and those departments didn’t know exactly, and now my advisor is concerned about whether to submit these or not. We called Discover but they weren’t certain as well.
She’s worried about getting me, or herself, in trouble, which I understand.
Right now, it feels like a 50/50 call. Personally, I’d prefer to rely on direct guidance from the IRS. She’s leaning toward treating them as gross income and letting it sort itself out. If the IRS can provide written confirmation beyond what’s stated in Publication 4681 (because it’s a little vague for the private student loans for her liking), I need that documentation so she can act.
Thank you!!
Parsons703@reddit
I did not include as income and received my tax refund in less than 2 weeks. The 1099c isn’t even showing up on my transcripts so I think Discover only sent these for state filing purposes (since 5 or so states don’t follow ARPA law).
Past-Lifeguard-8022@reddit
I’m going around to all the post I have been following regarding this situation. My tax professional has confirmed that my discharged Discover loans are exempt from being considered income under ARPA. I have seen others saying FreeTaxUsa will automatically file correctly exempting the loan forgiveness from your income.
Remarkable_Tune_8272@reddit
Hello, I had three 1099C forms Discover Student Loans cancelled, got my taxes done today. Our tax lady has filed for us for 10 years now and knew nothing about loan forgiveness and noted when she put in the information for 1099C there were no questions pertaining to student loan or forgiveness. Basically counted as taxable income for Federal and state of Michigan.
Parsons703@reddit
Did you show your tax person the American Rescue Plan Act section for student loans? Private education loans are part of it making 2024 it tax exempt at federal level. Only 5-6 states don’t follow this. We all are just trying to figure out HOW to report this since it’s beyond frustrating no one has the answer. I did find HR block has a section that says forgiven student loans when you input the 1099c - after you input it, it excludes it from gross income. Think I’m going to go that route
Remarkable_Tune_8272@reddit
I asked if she knew anything about ARPA. She noted nothing is listed on taxes forms to exempt the 1099C forms from discover student loans and no questions pertaining to student loans.
TieDear9616@reddit
https://www.irs.gov/pub/irs-drop/n-22-01.pdf
TieDear9616@reddit
You need to show her the 2022-1 statement that says lenders should not have issued 1099-Cs for cancelled debt because it would cause this very thing. It would create confusion for the taxpayer and may get flagged for audit by the IRS if not reported. It also very clearly states that the 1099-Cs are not required to be filed as well.
Discover issued 1099s with the incorrect event codes bc they wanted to cover their asses while also being able to write off the massive amount of loans they charged off on their taxes.
Nervous-Entrance-112@reddit
Hi all, I just received a 1099-C from a debt collector (end of February now and I’ve already filed and received my tax refund)but I remember we settled on a agreed payment price in March of 2024 for the debt.. I called TurboTax who I did my taxes through and they told me to disregard the 1099 but I’m confused on what to do I don’t want it to affect me next year or later on.
Valuable_Lecture_73@reddit
I’m in the same boat- what did you end up doing? Leaving it be? See if it gets flagged?
Nervous-Entrance-112@reddit
As of now yes that’s what I’m doing.. TurboTax told me to ignore it so I’m taking their advice.
joeynnj@reddit
Hey I found this because I was searching for the same thing and this came up.
I received two the other day, also from Discover. Originally they were two CitiAssist loans that Discover took over. So these were private student loans, not public and not subject to PSLF.
Of note, the date of the discharge was 9/23/2024. One for $10,000, the other for $19,145.10. They are identified on the 1099-C as student loans. Box 6, labeled "Identifiable event code" is G. The key says "G - Decision or policy to discontinue collection".
Referring to IRS Publication 4681, in the subsection for Student Loans:
Further down:
Furthermore:
CleverForestFox@reddit
Yes - thank you, for some reason despite this existing for a few years already, people keep giving misinformation and saying private loans aren't included or that its only if a student loan is "forgiven" not cancelled or discharged - which is incorrect. The companies are sending out these 1099-Cs apparently for their own records BUT these not taxable if the discharge or cancellation happened by December 31, 2025.
m1k3unl1m1t3d@reddit
I'm in this boat myself. I have 1099-C for around $48k in discover student loan debt cancelled in 10/24. I was thinking I'd have to pony up like $5k of extra taxes but today I just stumbled on ARPA and it's given me some hope.
It seems like my cancelled debt will be federal tax-free and since I'm in PA, state tax-free also.
I just now have to figure out how to file the form now, or do I just not file it on my return at all?
joeynnj@reddit
I think there is a reason they might be sending them - even if they aren’t federally cable they may be by the state. So it’s probably a good thing they send these out.
CleverForestFox@reddit
If it's for student debt, you shouldn't be getting 1099-C bc of the American Rescue Plan, so I'm definitely confused about that.
Apprehensive-Ad-80@reddit
Pretty sure that only applies for federal loans, private loans you still get the tax bill
ggnore27@reddit (OP)
I'm reading ARPA right now and it specifically qualifies the tax relief for both federal and private student loans with no qualifiers for the private student loan discharge.
Party-Ad59@reddit
Can you please provide the link?
ggnore27@reddit (OP)
https://www.irs.gov/pub/irs-pdf/p4681.pdf
Here's the exact tax code from the IRS. Top of page 5 is what you're looking for.
u/Apprehensive-Ad-80 for your reference as well so we can stop giving bad advice.
Party-Ad59@reddit
Thank you 👍
CleverForestFox@reddit
No, it goes for all student debt. You can also search "private student loans American rescue plan" to confirm it.
"The American Rescue Plan states that private student loans that have been forgiven between January 1, 2021, and December 31, 2025, are exempt from federal income taxes. Be sure to check with your state to see if state income taxes will apply." That is from the Discover website, which put in plain language since they used to offer private student loans.
hello__brooklyn@reddit
His loans weren’t forgiven. He just never paid and statute of limitations went into effect. Which is what it says in the post.
ggnore27@reddit (OP)
1099-C is specifically a form creditors use to discharge a debt (and write it off). It doesn't matter whether it was defaulted and reached SOL, a person died, tremendous hardship, etc.
hello__brooklyn@reddit
I wasn’t trying to be pedantic. I thought forgiven was like a gift. Your loans are forgiven and you’ve been granted an opportunity at a fresh start vs. a charge off meaning more like you defaulted like a dead beat running away from their responsibility. Like a deadbeat dad disappearing vs. signing over custody and being in the clear of any financial obligations. Isn’t it that way on a credit report? Charge offs ding you but forgivens don’t negatively impact you.
littlewashu45@reddit
Yes, all the terminology is hard to understand. But I used deepseek ai to help with terms. When dealing with private student loans, terms like "charged off," "discharged," and "written off" refer to specific financial and legal statuses of the debt. Here's what each term means:
A charge-off occurs when a lender determines that a debt is unlikely to be collected after a prolonged period of non-payment (typically 180 days or more). The lender writes the debt off as a loss on their financial statements.
What it means for you: Even though the debt is charged off, you still owe the money. The lender may sell the debt to a collection agency, and the charge-off will appear on your credit report, significantly damaging your credit score.
A discharge typically refers to the cancellation of debt, often through a legal process like bankruptcy. In the case of private student loans, discharging them is very difficult and usually requires proving "undue hardship" in bankruptcy court.
What it means for you: If your private student loans are discharged, you are no longer legally obligated to repay them. However, this is rare and typically only happens in extreme financial circumstances.
A write-off is similar to a charge-off. It’s an accounting action where the lender removes the debt from their books as a loss. This usually happens after the debt is deemed uncollectible.
What it means for you: Like a charge-off, a write-off doesn’t eliminate your obligation to repay the debt. The lender may still attempt to collect the debt or sell it to a collection agency. The write-off will also negatively impact your credit score.
Key Differences:
Charge-off vs. Write-off: These terms are often used interchangeably, but both mean the lender has given up on collecting the debt and has classified it as a loss. However, the debt is still owed.
Discharge: This is a legal elimination of the debt, meaning you no longer owe it. This is rare for private student loans.
You may still be sued for the debt, depending on your state’s statute of limitations.
Can You Settle or Negotiate After a Charge-Off?
Yes, you can often negotiate a settlement with the lender or collection agency for less than the full amount owed. However, any forgiven amount may be considered taxable income by the IRS.
Discharge of Private Student Loans:
As mentioned, discharging private student loans is extremely difficult and usually requires filing for bankruptcy and proving "undue hardship." This is a high legal bar to meet.
CleverForestFox@reddit
The ARP literally says forgiven or canceled debt. Best course is for OP to call the creditor and dispute it
hello__brooklyn@reddit
I was only going by the quote you typed. The word canceled wasn’t there. Only “forgiven”
You wrote:
“The American Rescue Plan states that private student loans that have been forgiven between January 1, 2021, and December 31, 2025, are exempt from federal income taxes. Be sure to check with your state to see if state income taxes will apply.” That is from the Discover website, which put in plain language since they used to offer private student loans.”
If it literally also included the word canceled then that should have also been copied and pasted for context. But you know the saying about those who assume someone is posting accurate info . . .
Available-Average579@reddit
Ok, guys. What do you think? Is it us? https://finance.yahoo.com/personal-finance/student-loans/article/tax-on-student-loan-forgiveness-182343895.html
Parsons703@reddit
Based on what I read in ARPA and a few other articles - I think we are covered https://www.cnbc.com/2025/01/12/student-loan-forgiveness-what-to-know-at-tax-time.html
Status_Drop_8340@reddit
Hi. How did people file their taxes with the 1099-C form?
Also if the loans defaulted 7-8 years ago and the date of cancellation is 10/2024, IRS 4681 applies to when they were canceled right?
Parsons703@reddit
Following - curious to see how people filed if we are exempt via ARPA. I believe it goes off the cancellation date. I also defaulted in 2017 and the 1099c identifiable event says 10-24.
niffd1@reddit
Some info for Massachusetts
https://www.wcvb.com/article/mass-wont-tax-excused-student-loans-as-income/41044936
joeynnj@reddit
Hi I just got a reply to my inquiry about this from TaxHawk. This is what it said:
Thank you so much for your patience. According to Publication 4681, "you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies."
If your canceled student loan meets the exclusion qualifications, you do not need to enter it on your return at all. Instead, just be sure to keep a copy of your 1099-C and any additional documentation you have the shows it was for the discharge of a student loan debt.
Have a nice night,
Elaine, EA
Pro Support
Again, this is from TaxHawk aka FreeTaxUSA.
ggnore27@reddit (OP)
So, I spoke with a tax professional earlier today and she suggested something similar.
It should not be reported, but a letter attached to the returns with copies of the 1099-C form(s) and an explanation as to why it is not taxable (referencing Pub 4681).
HAMBoneConnection@reddit
The answer is just ignore it and file your taxes as if you hadn’t received it then deal with the IRS auditors if that happens.
The reason is that while the loan company can issue a 1099-C to anyone for anything they want, they still need to validate the debt and provide the paperwork if you challenge it with the IRS by saying that it was wrongfully issued etc.
A lot of time with the banks and loan companies they don’t have their shit together enough to actually respond quickly enough to the IRS auditor/officer and it just gets thrown out.
If the company wanted to spend that much time and effort on you and your debt and actually had things straight then they usually wouldn’t have just forgiven the debt and would’ve pursued legal remedy.
BolognaOG@reddit
I just want to put my experience out there with Discover.
I called Discover cust svc, they know nothing of ARPA or notice 2022-1 stating 1099-C should not be filed. They will not help and will not revoke the 1099-C, they claim they did everything that is required by law and have no knowledge of anything else. They say I can reach out to legal by writing a letter or I can contact a tax advisor "why i received them".
I spoke with a tax attorney who used to work at the IRS. He stated if I am sure these 1099-C fall under ARPA, then file taxes normally and when hit with a soft letter from the IRS about under reporting income, simply state these forms were issued erroneously and not subject to taxes under ARPA and 2022-1. Here are the categories that ARPA does cover. I personally believe these fall under section 2 because I do not know if Discover backed their loans by the feds, state, or local gov.
"By way of background, the American Rescue Plan Act of 2021 (ARPA) amended Section 108 of the Internal Revenue Code (Code) to expand the types of discharges of student loan debt that will be excluded from income.
Before the enactment of ARPA, Section 108 of the Code provided narrow exceptions to the general rule requiring the inclusion of cancellation of indebtedness (COD) income. The exceptions applied to COD income from the discharge of student loans:
Relief also was provided for COD income resulting from certain other student loan discharges, such as loans discharged under the Department of Education’s Closed School process or the Defense to Repayment discharge process.
ARPA added further relief by excluding from gross income certain discharges of student loans occurring after December 31, 2020, and before January 1, 2026. The new “student loan discharge” exclusion applies to the following types of loans:
The discharge of a loan made by either an educational institution or a private education lender is not excluded under the above rules, however, if the discharge is on account of services performed for either the organization or for the private education lender."
ggnore27@reddit (OP)
https://www.irs.gov/pub/irs-pdf/p4681.pdf
Top of page 5. This is directly from the horse's mouth, not ARPA. Albeit, these are in the IRS documents because of ARPA.
Tommyknocker77@reddit
Did the original charge off jack up your credit?
ggnore27@reddit (OP)
Yes
jonsonmac@reddit
You might want to consult a tax professional. If it charged off before the end of 2024, there’s no taxes because of the American Rescue Plan. I had one charged off in 2021 and I didn’t receive a 1099-c (and it’s also not on my IRS transcript)
hello__brooklyn@reddit
Charged off and forgiven aren’t the same thing. The American Rescue Plan is for loans that were forgiven. OP says this bill is coming 5 years after he reached the statute of limitations. You say yours were charged off in 2021. You just may be fortunate to not receive a bill yet or have a collector who is lax with their charge offs.
jonsonmac@reddit
It charged off, but I settled at 30% of the balance. So I should have received a 1099-C for the remaining balance. I worked directly with the bank, not a collector, so I assume they would be on top of sending a 1099-C if I was supposed to get one.
RefrigeratorCivil211@reddit
So you were able to settle with the original debtor even after account was charged off and sold to a collection agency.???
jonsonmac@reddit
It wasn’t sold to a collection agency when I settled. Basically the loan was with Firstmark (the loan servicer), and when it charged-off, they sent it back to the bank that loaned me the money. I worked with the bank within days of it charging off. Hopefully that makes sense.
ggnore27@reddit (OP)
So the 1099-C explicitly states the date of forgiveness and that was 10/28/2024. That would certainly seem like this qualifies for federal tax exemption. Maybe they still sent the 1099-C because of state tax?
Parsons703@reddit
Do you know if I will get hit with state tax if I live in NY? I just got the 1099c and it does say “taxable state: NY” on the top of the form. I had a private discover student loan
Apprehensive-Ad-80@reddit
Federal or private loan?
jonsonmac@reddit
Private
littlewashu45@reddit
Did your private loan get a write-off, or did you settle a debt with them?? to get the 1099-c?
ggnore27@reddit (OP)
Write-off
littlewashu45@reddit
was it with discover?
ggnore27@reddit (OP)
Yes, it was with Discover. And the debt is beyond the SOL, so it's not collectible. This seems like a reasonable course of action from Discover since they can't really sell bad dead to a reputable business like Firstmark.
CromRex@reddit
https://www.irs.gov/pub/irs-drop/n-22-01.pdf
ggnore27@reddit (OP)
So I will need to go back to Discover and tell them to rescind the 1099-C? This sounds like it's going to be a shit show.
Usukidoll@reddit
I would check to see if state taxes are being owed, but the American Rescue Plan Act waives the taxes for any forgiveness (federal or private) until the end of this year .
CromRex@reddit
Is it possible that they go by the date of charge off, which is usually around when you default? That might explain why you received a 1099c, since that would have been before 2020.
Did you settle this debt?
Putrid_Factor_2660@reddit
What about you need unemployed for years?
ggnore27@reddit (OP)
Why wouldn't I have received a 1099-C then?
CromRex@reddit
Not sure. Maybe you could get a consultation with a tax preparer about it.
StdntLoanDfltersMod@reddit
If you meet the requirements, you can file for insolvency.
ggnore27@reddit (OP)
Unfortunately, I don't think I'd qualify for insolvency. I don't own assets and I have a high income.
Should I just prepare for the tax bomb in April?
PalmBeanz@reddit
That's why you consult with an accountant or a tax attorney. You've got limited knowledge. Why pay more on taxes? The amount you spend on then could save you.
mouseturd@reddit
Just get with a good company to review and file your taxes. I was making 70k, no assets, and qualified for insolvency
hello__brooklyn@reddit
Can you claim a dependent to offset the tax bill? A friend on your couch, parent out of work, sibling out of work, etc
StdntLoanDfltersMod@reddit
Then I would say yes, prepare for the tax bomb.
TravelingDebt@reddit
I can not wait to see a 1099-C form! Was this with Navient?
ggnore27@reddit (OP)
Discover (by way of The Student Loan Corp)
Parsons703@reddit
Just received a 1099c from Discover saying the identifiable event happened 11/24 (the private student loan charged off my account Jan 2017 and has since dropped off my credit report so it was surprising to see the 1099c was sent now). I saw something that said the American Rescue Plan does not cover private student loans. Has anyone else had a cancelled private student loan that was covered from being taxed under that rescue plan?