Millions of American taxpayers have finished filing their annual tax returns. For many families, this exercise was a painful reminder of an aspect of their financial life they thought they had left behind: debt.
That is because the “other income” line of IRS Form 1040 asks whether a taxpayer has had debt forgiven in the last calendar year. That debt can include credit card, medical, and other unsecured debt, or, as President Joe Biden has noted, other types of debt such as student loan debt. As far as the IRS is concerned, debt that has been wiped off that family’s books is akin to a salary or hourly wages. If, for example, a family owed $50,000 in medical debt, but on their own or with a debt resolution provider, was able to reduce that sum to $10,000, the IRS would consider the $40,000 difference as income in their pockets.
