Opus 17
Level 15

Get your taxes done using TurboTax

I'm sorry for your loss.

 

Generally speaking, death benefits (whether term or whole life insurance) are not taxable to the beneficiary.  This is because the premiums were paid with after-tax dollars, which means the payout is not taxed again.

 

In some cases, if there is a delay in paying the benefit so that the final payment includes some interest, the interest will be taxable but not the main benefit.  The company would report the interest to you on a 1099-INT form.  (For example, if the death benefit was $25,000, and because of late payment you received an additional $60 interest, only the $60 interest is taxable income.)

 

My father-in-law had insurance that was converted by the insurance company into company stock, for some reason.  In that case, the value of the insurance was determined by the share price on the day he died.  Since it took a few days for the insurance company to cash in the stock and mail my mother in law a check, the stock price went up in the mean time so there was a small capital gain based on the increased value over those few days.  The rest of the payment was not taxable.  Any gain in that situation would be reported on a 1099-B. 

 

Some annuities that are purchased with pre-tax money (such as employer retirement plans) will be taxable when paid, in which case the payer will send you a 1099-R form at the end of the year.

 

1099-R, 1099-B and 1099-INT forms each have their specific place in Turbotax if you simply run the income interview, you will come to it.  Or you can click "show me everything" to see all the income options at once. 

 

If you aren't sure what kind of payout you received, you will need to call the company that made the payment.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*