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The tax season is upon us once again and we want to address some of your concerns regarding tax liability on the DMP and DSP.
Debt Management Plan:
The Debt Management Plan, or DMP, allows you to make one convenient monthly payment to CareOne, who then distributes the funds to each of your creditors. You may receive benefits such as reduced interest rates and waived late or over the limit fees.
Under this plan you agree to pay back 100% of your debt, however your debt can be paid back much more quickly because of the benefits offered by the creditors.
Being that you are paying the account in full there would be no tax liability as there is no forgiven debt.
Many have also asked if they can claim the interest paid on your account. Unfortunately, this is not a question we can answer; however, you should consult with your tax advisor for detailed information.
Debt Settlement Plan:
For customers who are unable to afford the Debt Management Plan we offer an alternative which is Debt Settlement.
Under this plan you have agreed that you are no longer able to afford paying your creditors, either on your own, or through a CareOne DMP.
Instead your monthly payment is deposited into an escrow account. As that account builds value, an experienced team of negotiators contacts your creditors in an attempt to work out more favorable repayment terms, which can either be a single lump sum payment or multiple monthly payments.
The monthly payment is based specifically on your budget, and acceptance of a settlement offer can vary on the amount of your monthly payment, the rate at which your escrow fund builds value, and the creditors.
With the Settlement plan there are several other things to keep in mind. When an account is settled the creditor may send notice of the forgiven debt amount to the IRS which can be counted as income for the client. This scenario can occur if the amount of debt forgiven by the creditor is greater than $600. If you receive a 1099 from the IRS, you should either include it with your taxes, or provide it to your tax professional.
For more tax information you can also see:
Straight Talk on Debt Weekly Reading: Tax Edition or contact the IRS directly.
i waited last year to the end of february to file my taxes in case i was going to receive a 1099 c. i never received one. now this month i get a letter from the irs claiming i did not include in my income the cancelled debt. how could i when i never received a 1099 c? does the 1099 c have to be out by january 30th?
Yes they are to be issued by the last day in January according to the IRS.
You also may want to consult with your tax professional and see the IRS site for more information.
What about company's that's say they sent them and did not really..? Im waiting on 4 and Its Feb. already... I know how much cancel debt I have do I really need the paper...
I would suggest waiting a few more days to see you receive the 1099. The creditor(s) had to have it postmarked by January 31st and today is only the 2nd. If you do not receive it within the next 5 days, please contact a tax professional to determine what they suggest.
many times you can print these items from their websites
I was going to put my tax refund towards me debit, But I just found out today I need new tries and front break pads. I did do my shopping around online to find good deals. I tell myself that a least I found out now that I will have the money instead of later when I don't have it. I just have to be patient and thankful for what I do have now in my life.
I was supposed to get over $4000 back, but after adding in my cancelled debt to my income that I received the first week of February, I'm now paying in $1500, ouch. Wasn't expecting that at all. This all starts to add up fast when you take the monthly payment, the 30% fee on settlements and now this. I'm not saving as much as I thought I would, but am still happy with my decision. A year from April I should be done.
I waited until the third week in February to file my taxes. On February 25th, I rec'd a 1099C from a creditor that CareOne had not made a settlement offer with yet. So this came out of the blue. I have to file an amended tax return. The post date on the 1099C is 2/23/12. Doesn't seem fair that they can send them out so late. But atleast that is one creditor I do not have to worry about.