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How does credit card debt forgiveness impact your taxes?
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With persistent inflation and soaring interest rates dogging consumers in recent years, Americans now face over $1 trillion in credit card debt. The average American now owes around $8,000 in credit card debt.
That’s not an amount most households can repay quickly, especially if you carry a balance and must pay substantial interest rates. According to the Federal Reserve, the average credit card interest rate has skyrocketed from 16.45% in 2021 to its current rate of 22.76%. Even worse, a recent Consumer Financial Protection Bureau (CFPB) report found that 15 credit cards from nine of the largest issuers charge cardholders annual percentage rates (APRs) over 30%.
Unable to pay higher prices for everyday expenses, many Americans rely on credit cards to make ends meet.
Amid these circumstances, it shouldn’t be surprising that many cardholders struggle to keep up with their payments. To that end, 30-day delinquency rates hit 3.25% in the second quarter of 2024, rising for the 11th consecutive quarter.
If your credit card debt has reached a dangerous level, consider your options, including debt consolidation, a home equity loan and credit counseling. If you’ve already missed payments and you’re staring at bankruptcy or other more serious options, credit card debt forgiveness—or debt settlement—may make sense. These programs negotiate with your creditors on your behalf to lower your debt and help you tackle it better. Before proceeding, however, it’s essential to consider how credit card forgiveness could impact your taxes.
Start exploring your credit card debt forgiveness options online today.
How does credit card debt forgiveness impact your taxes?
Pursuing credit card forgiveness through a debt settlement service could help you reduce your debt by allowing you to pay only a portion of what you owe. Remember, however, that the IRS adds any forgiven debt to your income.
“There are limited exceptions, but most debt settlements are considered taxable,” says James Guarino, CPA and managing director at Baker Newman Noyes in Woburn, MA. “This means the portion of the debt forgiven is reported on your tax return as additional ordinary income, and it can be subject to federal income tax at rates ranging from 10% to 37% for 2024, depending on one’s tax bracket.”
The amount you could owe the IRS for credit card forgiveness depends on your tax bracket. The higher your tax bracket, the more you will pay for any forgiven debt. For example, if you get a $10,000 debt settlement, and your income places you in the 20% tax bracket, you would owe $2,000 in federal taxes on your forgiven debt.
If you’re considering tackling your credit card debt through a settlement, you’ll need to report it and prepare for the tax bill ahead of time. “You should be ready to report any debt that is forgiven during tax season,” says Alex Beene, a financial literacy instructor at the University of Tennessee at Martin. “This will normally come in the form of a 1099-C from the institution that has forgiven the debt. This is one of the biggest mistakes I’ve seen some make. They don’t prepare for this, and as a result, they find themselves with a larger tax bill and an inability to pay it.”
Prepare for this inevitability with a top debt relief servicer now.
Who should consider credit card forgiveness?
Debt settlement offers a potential option to reduce your credit card debt, which could ease the strain on your budget. But, like bankruptcy, this option should be taken seriously as it could negatively affect your credit score.
As Melissa A. Caro, CFP and founder of My Retirement Network in New York City, notes, “Debt settlement is a last resort after exploring alternatives like debt consolidation, credit counseling or negotiating directly with creditors. But if you have a significant amount of unsecured debt—such as credit cards—can’t meet minimum payments and would even be potentially facing bankruptcy, then settlement can have a less severe impact on your credit score and financial future than declaring bankruptcy. However, it will still damage your credit score and may not eliminate the entire debt.”
The bottom line
If you decide to pursue credit card forgiveness through a debt settlement, be prepared to pay the income taxes. “If you are facing an additional tax burden from debt settlement, the two most important factors are to document every piece of paperwork in your forgiveness process and meet with a tax advisor to assess what your payments will look like and how to best pay them back,” says Beene.
If you’re concerned your credit card debt might be unsurmountable, explore all of your options, including debt consolidation loans and 0% balance transfer credit cards. However, if you don’t correct the behaviors that led to the debt, you could end up with more debt, making the problem worse. It’s also wise to consider working with a credit counselor who can help you set up a plan to pay off your debt.
A passenger successfully landed a small plane on Friday after the pilot had a medical emergency, the Federal Aviation Administration said.
The twin-engine Beechcraft King Air 90 was traveling from Henderson Executive Airport in Las Vegas, Nevada to Monterey Regional Airport in California, with a pilot and one other person on board, the FAA said.
The pilot suffered an unspecified medical emergency while flying, the FAA said, forcing the passenger to take the controls and make an emergency landing at Meadows Field Airport in Bakersfield, California.
The Kern Fire Department told CBS News affiliate KBAX that firefighters were called to a report of a medical emergency on the plane. The pilot was reported to be “incapacitated,” the fire department said. Firefighters saw the plane approach and land safely, then “chased” the plane down the runway in emergency vehicles to meet it.
The FAA did not release the passenger or pilot’s identities nor give an update on the pilot’s condition. The pilot was taken to an area hospital by ambulance. The passenger did not report any injuries.
The FAA and the National Transportation Security Board will investigate the incident, the FAA said.
Congolese authorities began vaccination against mpox on Saturday, nearly two months after the disease outbreak that spread from Congo to several African countries and beyond was declared a global emergency by the World Health Organization.
The 265,000 doses donated to Congo by the European Union and the U.S. were rolled out in the eastern city of Goma in North Kivu province, where hospitals and health workers have been overstretched, struggling to contain the new and possibly more infectious strain of mpox.
Congo, with about 30,000 suspected mpox cases and 859 deaths, accounts for more than 80% of all the cases and 99% of all the deaths reported in Africa this year. All of the Central African nation’s 26 provinces have recorded mpox cases. Officials in Congo previously told CBS News that they’ve struggled to diagnose patients and provide basic care in the vast country of 100 million people, where a fragile, under-resourced healthcare system is also burdened by the stigma associated with the virus.
Although most mpox infections and deaths recorded in Congo are in children under age 15, the doses being administered are only meant for adults and will be given to at-risk populations and front-line workers, Health Minister Roger Kamba said this week.
“Strategies have been put in place by the services in order to vaccinate all targeted personnel,” Muboyayi ChikayaI, the minister’s chief of staff, said as he kicked off the vaccination.
Moses Sawasawa / AP
At least 3 million doses of the vaccine approved for use in children are expected from Japan in the coming days, Kamba said.
Mpox, also known as monkeypox, had been spreading mostly undetected for years in Africa before the disease prompted the 2022 global outbreak that saw wealthy countries quickly respond with vaccines from their stockpiles while Africa received only a few doses despite pleas from its governments.
However, unlike the global outbreak in 2022 that was overwhelmingly focused on gay and bisexual men, mpox in Africa is now being spread via sexual transmission as well as through close contact among children, pregnant women and other vulnerable groups, Dr. Dimie Ogoina, the chair of WHO’s mpox emergency committee, recently told reporters.
More than 34,000 suspected cases and 866 deaths from the virus have been recorded across 16 countries in Africa this year. That is a 200% increase compared to the same period last year, the Africa Centers for Disease Control and Prevention said.
A lack of diagnostic materials and basic medicines to treat the virus, which can improve survival rates, have also hampered efforts to contain the outbreak, and access to vaccines remains a challenge.
Moses Sawasawa / AP
The continent of 1.4 billion people has only secured a commitment for 5.9 million doses of mpox vaccines, expected to be available from October through December, Dr. Jean Kaseya, head of the Africa CDC, told reporters last week. Congo remains a priority, he said.
At the vaccination drive in Goma, Dr Jean Bruno Kibunda, the WHO representative, warned that North Kivu province is at a risk of a major outbreak due to the “promiscuity observed in the camps” for displaced people, as one of the world’s biggest humanitarian crisis caused by armed violence unfolds there.
The news of the vaccination program brought relief to many in Congo, especially in hospitals that had been struggling to manage the outbreak. Doctors with several charities working in the country have told CBS News they’re overstretched and short on supplies, even having to use tents and mattresses on the floor of makeshift isolation wards to treat a constant influx of patients.
“If everyone could be vaccinated, it would be even better to stop the spread of the disease,” said Dr. Musole Mulambamunva Robert, the medical director of Kavumu Hospital, one of the mpox treatment centers in eastern Congo.
Eastern Congo has been beset by conflict for years, with more than 100 armed groups vying for a foothold in the mineral-rich area near the border with Rwanda. Some have been accused of carrying out mass killings.
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