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I Receive a 1099 for a Forgiven Student Loan. How Do I Pay the Taxes? – John

“Dear Jim,

Parent plus loan forgiven in Permeant disability.

Received 1099C for $53,000 Loan amount and $33,000 in Interest. How does one pay the taxes when the only income is SS Disability.


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The Answer


First, you should confirm that the cancellation of debt income is taxable.

The cancellation of debt (reported on Form 1099C) is income. However, the question always is: Is it taxable income?

The answer lies in whether you qualify for one of several exclusions allowed by law. The most common exclusion reasons are;

  • Debt canceled in a Title 11 bankruptcy case
  • Debt canceled during insolvency
  • Cancellation of qualified principal residence indebtedness

You report these exclusions on a Form 982. These determinations and calculations are based on your specific circumstances

Assuming that you confirmed that you owe taxes on the 1099C and do not have the ability to pay (from your monthly income or from other sources, such as available liquid assets), then you would need to make arrangements with the IRS to address the balance owed.

When you cannot pay your tax bill to the IRS, you do have options to consider:

  • Getting into a monthly payment plan based on your ability to pay (i.e. your monthly income less your monthly living expenses)
  • Asking the IRS for currently not collectible status (i.e. proving you do not have an ability to pay)
  • Submitting an offer in compromise (i.e. proving to the IRS that you do not have the ability to pay or assets to satisfy the liability – now or in the future)

My recommendation is:

  1. Determine that you owe taxes on the cancellation of debt
  2. File a timely return
  3. If you owe, determine your ability to pay (use IRS Form 433F) and what option is applicable
  4. Contact the IRS, after you receive your first notice, and make arrangements based on your ability to pay

If you only have SS disability income, you most likely will be non-collectible or have a small payment arrangement. Keep in mind, as your financial situation changes, you can change your arrangement with the IRS.



I Receive a 1099 for a Forgiven Student Loan. How Do I Pay the Taxes?   JohnJim Buttonow is one of the resident debt experts here at that helps people for free. Jim is a licensed CPA who spent 19 years with the IRS coordinating large compliance teams of IRS agents and specialized personnel. In the last 5 years, Jim has invented consumer and practitioner software and treatises on how to address many different tax issues. He has also represented many people before the IRS examination, collection, filing, and appeals functions. He currently assists taxpayers on an active pro bono tax practice aimed at serving people in need. He can be reached at

If you have a tax question you’d like to ask just use the online form. I’m happy to help you totally for free.

I Receive a 1099 for a Forgiven Student Loan. How Do I Pay the Taxes? - John by

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About Jim Buttonnow

Jim Buttonnow
Jim Buttonow, CPA/CITP, is cofounder of Beyond415. He has more than 26 years of experience in IRS practice and procedure. Reach Jim at [email protected].

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