topic Is a death benefit that my wife received from a Pension and Relief fund considered federal taxable? in Retirement tax questions

Is a death benefit that my wife received from a Pension and Relief fund considered federal taxable?

mikechar — Mon, 09 Mar 2026 06:12:23 GMT

Is it subject to tax in the state that I live if the benefit was issued by another state?

Re: Is a death benefit that my wife received from a Pension and Relief fund considered federal ta...

JamesG1 — Sun, 13 Feb 2022 14:59:11 GMT

Generally, not. This IRS FAQ states:

Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, are not includable in gross income and you do not have to report them. However, any interest you receive is taxable and you should report it as interest received.
However, any interest you receive is taxable and you should report it as interest received.
If the policy was transferred to you for cash or other valuable consideration, the exclusion for the proceeds is limited to the sum of the consideration you paid, additional premiums you paid, and certain other amounts. There are some exceptions to this rule. Generally, you report the taxable amount based on the type of income document you receive, such as a Form 1099-INT or Form 1099-R.

State taxability issues depend upon the states involved. What is the state of residence and the state where the payment was issued?

Re: Is a death benefit that my wife received from a Pension and Relief fund considered federal ta...

mikechar — Sun, 13 Feb 2022 17:37:46 GMT

Thanks for responding. It was issued from LA but we’re PA residents. Federal tax was already withheld from the gross and was reflected in the amount she received.

Re: Is a death benefit that my wife received from a Pension and Relief fund considered federal ta...

JamesG1 — Sun, 13 Feb 2022 21:10:46 GMT

This Pennsylvania Department of Revenue website states:

Life insurance on the life of the decedent is not taxable in the estate of the decedent. In addition, the proceeds are not taxable according the state income tax law.

Is the income reported on a 1099-R? Is box 7 coded as '4'?