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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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My father in law has a life insurance policy he wants to

Customer Question

My father in law has a life insurance policy he wants to cash out of 8300. He does owe back taxes but is unable to pay them due to him being disabled and unable to work. He owes taxes from different years. If he cashes out his life insurance policy how much would the irs take or would they take the whole amount due to him owing back taxes?
Thank you
Submitted: 4 months ago.
Category: Tax
Expert:  Lev replied 4 months ago.

Hi and welcome to our site!

We generally need to know how much he paid into that policy (his invested amount) - that part is distributed tax free.

Expert:  Lev replied 4 months ago.

Surrender of policy for cash. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income.
You should receive a Form 1099-R showing the total proceeds and the taxable part. Report these amounts on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A.


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