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I received a payout from my father's life insurance policy.

Customer Question
I received a payout...

I received a payout from my father's life insurance policy. I got a 1099-R. Do I pay taxes on this?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

Do I need to pay taxes on life insurance distribution?

Accountant's Assistant: Is there anything else the Accountant should be aware of?

Not that i am aware of

Submitted: 1 month ago.Category: Tax
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Answered in 1 minute by:
3/7/2018
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 1 month ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 940
Experience: Former IRS Revenue Agent
Verified

I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 1 month ago

Dear Customer,

It sounds like that your father had an annuity contract with an insurance company. The annuity could have had a death benefit rider feature. This type of "life insurance" is not a result of a pure life insurance policy. The payment into the annuity contract is for investment regular purpose. The death benefit is a "rider" on the annuity. Most of the payout is based on the investment put in by the deceased. Therefore, the previously un-taxed portion will become taxable to the beneficiary and be taxed as regular income -- just like an annuity contract payout.

The enclosed quotations and website links are for your further reference.

Please read on and feel free to follow up.

Regards,

Fiona

https://www.irs.gov/publications/p575#en_US_2016_publink1000226707

"Annuity payments.

If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. For more information, see Variable annuities in Pub. 939 under Computation Under the General Rule.

Death benefits.

If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. If you choose to receive an annuity, the payments are subject to tax as described above. If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. See Survivors and Beneficiaries , later."

https://finance.zacks.com/annuity-death-benefit-tax-implications-11031.html

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