Does tax settlement hurt credit?

Taking the step of establishing a payment agreement with the IRS does not generate any reports to the credit agencies. As mentioned above, the IRS cannot share your personally identifiable information. While lenders might discover a federal tax lien notice, they wouldn't do so with the payment plan itself. Debt settlement will have a negative impact on your credit rating, even if you are reducing your debt obligations.

Legally, you must declare all taxable income received and this includes the amount of your debt settlement. If you are issued a Form 1099-C, the IRS will also receive an income notification and you may be penalized for not reporting it. You'll have to pay not only the taxes you owe, but also the fines. The United States has a progressive tax rate, which means that the tax percentage increases as the tax base increases.

You can negotiate a debt settlement agreement directly with your lender or seek help from a debt settlement company. No, the tax relief won't end your tax bill and could cost you more in the long run, but it could make paying what you owe the federal government much more manageable. Tax relief can allow you to divide your debt into payments or reduce the amount of taxes you pay to the government. And, if you think you may be a victim of tax identity fraud, see What to do if you're a victim of tax identity theft.

Tax relief actually involves setting up a payment plan or negotiating an agreement with the IRS; it's not about erasing your tax liability. This income is taxed at your normal tax rate, which ranges from 10% to 37%, depending on your taxable income. Tax relief companies regularly use the Internet, radio, and television to advertise their services to struggling taxpayers.

Ruby Harris
Ruby Harris

Friendly travel ninja. Wannabe twitter lover. Incurable music ninja. Friendly bacon buff. Subtly charming pop culture enthusiast. Amateur pop culture lover.

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