While you are required to report any debt settlement greater than $600 as income, not everyone ends up owing tax on their settlements. The IRS can allow for a write-off of income from forgiven debts, up to the amount by which you were insolvent at that time. This is not possible only if you had a positive net worth at the time of settlement, which is highly unlikely. Still, it is recommended that you consult a tax attorney or advisor from one of the reputable debt settlement companies to see what options can be applied to your specific circumstances.