How does the IRS know that a large deposit in my bank account is from non taxable life insurance proceeds?

[Philo0]

I'm getting a large life insurance payout this year but am worried it will trigger the IRS. How do they determine that it is non-taxable and not income or something nefarious?

[xmasbaby0]

The proceeds of a life insurance policy  are not taxable income.  What makes you believe the IRS is watching the deposits that go in to your bank account?

[Philo0]

I thought the IRS was notified of large deposits, over 10k. Do I need not to worry?

[xmasbaby0]

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insuranc...

[DoninGA · Accepted solution]

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@Philo0 wrote:

I thought the IRS was notified of large deposits, over 10k. Do I need not to worry?

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No, you do not need to worry.

IRS website for cash payments - https://www.irs.gov/newsroom/cash-payment-report-helps-government-combat-money-laundering

[Critter-3]

Contact the insurance company ... most likely there will be a 1099-R issued in January which you will report on your income tax return if you are cashing it in and that will show the gross distribution and any taxable portion if any.  

If this was due to you being a beneficiary on a decedent's policy then it is always tax free and no form is issued.  And since this is always issued in a check format the bank is not required to tell the IRS anything.