If you receive a 1099-C, you must address it on your tax return. If you don't, you may receive a letter from the IRS. Do you have to pay tax on canceled debt? It depends on the type of debt that was forgiven and how much debt you had at the time. If the debt was due to a bankruptcy or home foreclosure, you likely do not have to pay tax. Attach IRS Form 982 to your tax return and complete Part I and Part II (number 10a or 10b). If your canceled debt was from a credit card, complete the insolvency worksheet found on page 6 of IRS Publication 4681. The Insolvency Worksheet helps you figure if you had more debts than assets at the time the debt was canceled. Please read through the comments below... people asked great questions and many things are clarified, in particular, how to complete Part II of IRS Form 982 (number 10a or 10b). The IRS forms were updated since I made this video. "Other income" is now on line 8 of Schedule 1, not on the 1040 line 21. Page 6 of IRS Publication 4681 is where the Insolvency Worksheet is now found, not page 9. If you have any questions or want to see more articles and videos, please visit www.kayethetaxlady.com. If you'd like me to make a video on a topic, tell me your ideas via www.kayethetaxlady.com/contact.