Hi Team,
I got accelerated death benefit payout from my life insurance company last year due to cancer surgery and they sent me 1099-R form as follows.
1. Gross distribution: $xxx.xx (accelerated death benefit amount according to the policy plus "account value")
2a. Taxable amount: blank
2b taxable amount not determined: checked
7. distribution code: 3
What I mean by "account value" is this is one of those types of life insurance where your premium amount is being worked as an investment with some compound interest.
As far as I understand life insurance payouts due to critical illness or terminally ill are not taxable according to the IRS. For some reason, when I entered this 1099-R form during it looks like TurboTax making whole amount taxable and my due amount is shooting up through the roof.
For experiment, when I unchecked 2b and left it blank, my both federal and state refund amount got back to normal as if I don't have this form submitted.
I also talked with local CPAs long time ago, they told me death benefit payouts by Insurance due to critical illness shouldn't be taxable, although I did not go over details with them.
Can you please advise here?
