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1099-C vs. 1099-Q

The Internal Revenue Service issues a variety of 1099 tax forms for types of income that don't count as gross income. Most of these forms, including Form 1099-C, report income that the IRS considers taxable. Others, like Form 1099-Q, report income even when that income typically isn't taxable under IRS rules.

  1. Form 1099-C

    • When a creditor forgives more than $600 in debt, he must send Form 1099-C to the debtor and to the IRS. This form reports the forgiven debt as taxable income for the debtor. A mortgage written off as a result of foreclosure or property abandonment is a common form of debt forgiveness, and is reportable through Form 1099-C. In this case, the amount reported as taxable income would normally be the difference between the remainder of the mortgage and the property's fair market value. However, the entire mortgage may qualify as taxable income if the creditor can't repossess the property for resale.

    Form 1099-Q

    • A trustee of a Coverdell Education Savings Account issues Form 1099-Q to taxpayers who benefit from distributions through a Coverdell account. This form also reports distributions from similar qualified education savings plans. A student who receives educational plan benefits usually receives Form 1099-Q, although the trustee may send it to the account custodian -- a parent, typically --if a withdrawal from the account has been made. Contributions made to a qualified educational savings plan, such as the Coverdell ESA, do not qualify for a tax deduction; however, taxes do not accrue on money held in these accounts.

    Filing Information

    • Form 1099-Q includes boxes that report gross annual distributions from an educational savings account, the amount of interest earned through the savings account and the taxable income basis that must be reported to the IRS. This form must also indicate if the distributions came from a Coverdell ESA, or from a qualified private or state tuition program. Information boxes on Form 1099-C must include the date of debt cancellation, the amount of debt canceled and the amount of interest forgiven.

    Considerations

    • The IRS usually requires Form 1099-A when a creditor receives an interest in a property due to debt cancellation. However, if the debt was canceled through foreclosure or property abandonment, Form 1099-C fulfills this filing requirement. Some taxpayers receiving a 1099-C may qualify for a tax credit under the Mortgage Forgiveness Debt Relief Act of 2007, which may remove taxes for the entirety of a forgiven mortgage. Form 1099-Q normally doesn't report taxable income, because distributions for qualified educational expenses aren't taxed. If the distributions were for the taxpayer’s personal expenses, however, that money qualifies as gross income and is taxed normally.

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