Question: In 2013 and 2014 we had a debt cancellation (credit card settlements) since we were in financial hardship and weren't able to pay the credit card payments. We settled with creditors and paid off our debt but creditors have sent us 1099C forms and the amounts of cancelled debts were added to our income in 2013 and will be added in 2014 as well. This has raised our AGI tremendously for both years. Based on our actual income ,we are qualified but considering this phantom income (cancelled debt) seems like we won't be able to qualify. What do you suggest we should do? we need to send the 2013 tax return as proof of income. Can we to deduct the amount of 1099Cs from our AGI and report that amount? Please advise.
Answer: In addition to submitting a copy of your 2013 federal income tax return, you will want to explain to Covered California that your 2013 Income Tax form includes an exceptional one-time lump-sum credit which distorts your adjusted gross income (AGI). Download a free online affidavit form and use it to explain your debt cancellation issue. Otherwise, I would leave your Covered California account as it is for now.