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Old 09-05-2019, 10:13 PM
 
Location: Scottsdale, AZ
8,296 posts, read 5,078,124 times
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The wisdom of the Web seems clear on this point: an inheritance (death benefit) from a life insurance policy is not taxable to the beneficiary or beneficiaries.

However, my SIL says that when she received her $106k death benefit from the policy, $24k was withheld for taxes.

I've never looked into insurance policy payouts since I'm no one's heir, so any idea why this might have been true? Thanks.
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Old 09-05-2019, 10:51 PM
 
Location: Rust'n in Tustin
2,433 posts, read 2,515,928 times
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https://www.irs.gov/faqs/interest-di...est%20received.

Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received.
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Old 09-05-2019, 10:57 PM
 
Location: Gilbert, AZ
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I believe if premiums are paid with after-tax dollars, as is the case with most private policies, the benefit is not taxable. On the other hand, benefits paid from employer-provided policies are usually taxable, as the premiums were deductible and therefore effectively paid with pre-tax dollars. Same idea applies to disability insurance.
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Old 09-05-2019, 11:04 PM
 
Location: Pennsylvania
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There could also be state taxes.
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Old Yesterday, 01:43 AM
 
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Quote:
Originally Posted by PAhippo View Post
There could also be state taxes.
only if you don't have a beneficiary and the money goes in your own estate. that should never be the case except for poor planning
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Old Yesterday, 04:26 AM
 
Location: Gilbert, AZ
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Quote:
Originally Posted by hikernut View Post
I believe if premiums are paid with after-tax dollars, as is the case with most private policies, the benefit is not taxable. On the other hand, benefits paid from employer-provided policies are usually taxable, as the premiums were deductible and therefore effectively paid with pre-tax dollars.
I have to stand corrected on this. Did some reading and it seems more complicated than this. Generally not taxed, although apparently there are some exceptions.
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Old Yesterday, 04:48 AM
 
73,251 posts, read 73,030,272 times
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Quote:
Originally Posted by hikernut View Post
I have to stand corrected on this. Did some reading and it seems more complicated than this. Generally not taxed, although apparently there are some exceptions.
don't forget i can make my son the policy owner so it stays out of our estate . i can pay the premiums which i did , but he still gets it tax free .
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Old Yesterday, 08:16 AM
 
Location: Pennsylvania
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Quote:
Originally Posted by mathjak107 View Post
only if you don't have a beneficiary and the money goes in your own estate. that should never be the case except for poor planning

poor planning happens and the OP did say inheritance with death benefits in parenthesis.
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Old Yesterday, 08:30 AM
 
73,251 posts, read 73,030,272 times
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Quote:
Originally Posted by PAhippo View Post
poor planning happens and the OP did say inheritance with death benefits in parenthesis.
it would become part of the estate if the estate receives it .. depending on the states allowance it may or may not be taxable to the estate. that is why it should go to a beneficiary and not in to the estate
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Old Yesterday, 09:05 AM
 
Location: Scottsdale, AZ
8,296 posts, read 5,078,124 times
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According to the executor (actually successor trustee), my MIL planned it so the death benefit would go 50/50 to my spouse and my SIL directly.

I'm just gobsmacked by the fact that about 1/4 of the amount was withheld for taxes. I guess the spouse won't know until he gets his how much was principal and how much interest.

The topic came up because I was reading the thread about how a person is trying to keep her income below $170,000 because of Medicare IRMAAs. I asked the spouse, "So will our income this year be below $170k?" He shook his head. First I've heard of it.
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