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One of my parents died and I am the beneficiary of a small

death benefit policy from his...
One of my parents died and I am the beneficiary of a small death benefit policy from his employer. The claim forms ask me if I want to withhold federal and state taxes from the payout. The deceased lived in CA. I live in CA and am in the 39 percent federal tax bracket. Do I have to pay taxes on this benefit? Is there anything I can do to minimize the taxes?
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9/27/2016
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,876
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi, ... I can help here ... My name's Lane.

...

Life insurance death benefits proceeds are generally tax free. If benefits are paid out in a lump sum this amount is not included in gross income. Any interest received is taxable.

...

But if this is the typical group life insurance payout from an employer plan there will no tax at all.

...

Some insurance companies usually offer beneficiaries a choice of payout options other than a single lump sum. In this case, a portion of these payouts may be considered taxable earnings.... and this can be the reason you see this on the form.

...

Now if this is a PENSION payout that comes in the form of a survivor annuity, that can be taxable.

...

But if this is a life insurance policy (group OR individual) it's not taxable.

...

Please let me know if you have any questions at all, before rating me

...

If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit") ... Otherwise I receive no compensation from JustAnswer for the work here.

...

Thank you!

Lane

I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,876
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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