My aunt passed in 2018 and I was the beneficiary on the life insurance. I opted for lump sum. They took out Federal Withholding. Will this be taxable income to me?

[Opus 17]

Life insurance payments to beneficiaries is almost never taxable income.  If the payout earned interest or dividends between the date of her death and the date the payment was made to you, that interest or dividends is taxable income but it should be a small amount.  Since tax was withheld you will report this on your tax return and if the tax withheld is more than you owe, it comes back to you as a refund (more precisely, your refund is the result of all your taxes, and all your payments, so this gets folded into that calculation.)


Payouts on some kinds of investment contracts might be taxable.  And if you are the beneficiary of an IRA, 401(k), pension, or other qualified retirement account, and take a lump sum, that is definitely taxable.

Do you have more information on exactly what type of instrument this was?  Term life, whole life, pension, or something else?

[SweetieJean]

"opted for lump sum" It might have been an annuity.

[Carl]

I've actually seen whole life policies that the owner can set up to have the payout disbursed to a beneficiary over time. Not an annuity or anything of the such either.

[Carl]

Life insurance proceeds paid to the *named* beneficiary of a life insurance policy upon the passing of the insured is not taxable or reportable on any tax return.

HOWEVER - any earnings that may have accumulated on the payout after the passing of the insured are taxable income to that beneficiary recipient. So you can expect to receive a 1099-R at tax time for what will be a very small amount of reportable income. (small amount, in comparison to the total payout amount.)

[Anonymous]

did any of you consider that the life insurance payout may be coming from a company's profit sharing or pension paln.   - obviously not an IRA.    

[Carl]

Generally, since LI payouts are not taxable/reportable, it's most common to receive a 1099-R only if there are earnings in excess of the policy face value for the accumulated earnings on the policy between the time of death and date of payout.