People all around the world have been facing problems financially for the past one or two years due to COVID-19 which is why many businesses shut down and people were forced to stay in their homes. In order to save their businesses and earn a livelihood, many people took loans. When you don't have money to earn your daily bread it is not possible to pay your taxes as well. 

Due to the fall in the economy, many people fell prey to tax debts. While you think that putting an end to a tax debt ends all your problems, although it does make things a little easier, it does not entirely diminish the problem. When you settle a tax debt there are certain taxes that you still have to pay. But the question that arises in all of these situations is what is a tax debt settlement?

A tax debt settlement occurs when the creditor and the borrower have an agreement. Both of the parties sign a contractual agreement in which they agree that one of the parties is going to pay either the whole amount or a certain amount of money that they owe to the creditor. It is not possible for the creditor to write off the whole balance and he doesn't want to end up with bad debts either. That is why a tax debt settlement is a mutual agreement between the two parties as to how much money is going to be received by the creditor. If the debt is not paid in time then penalties are charged on the debt and those keep adding up until you pay all of the debt. 

Tax Implications After A Tax Debt Settlement 

Settling a tax debt does not take all your problems off the table nor does it add to it but you are obligated to pay the taxes that are imposed on you until your debt is paid off. A tax debt settlement takes a huge burden off your shoulders but at the same time, you need to gear yourself up for what is coming next. After a tax debt is settled the creditor sends a notice to the borrower which the revenue boards keep a check on. When you submit your tax return at the end of the financial year you have to mention that notice as “other income” which will closely be monitored by the revenue board. 

The income that you will mention in your tax returns is going to be taxed at a normal rate. The rate of tax percentage increases as the taxable base increases. 

Does Taxable Income Have To Be Reported? 

All the income that is taxable and received should be and has to be reported even the account that you have settled for your debt. The answers are pretty simple. If you don't want yourself getting into further problems then all you need to do is follow these basic steps to make your life easy.  

It is up to you, if you want to hide the information of the tax debt settlement from the revenue board and not pay the taxes then you can do it. But everything that you do is going to have some consequences. If in the future the revenue board chooses you for an audit then the information will no longer remain hidden from them. It is better to stay on the course and path that is better and close to the law. That will save you from a lot of hassle and problems. The path of the law is always a better option.