1099-R and Life Insurance Cash Value payout

[Manuel J]

We stopped the life insurance policy on me, last year, and received the Cash Value of the policy.  On my 1099-R from the insurance company:

Box 1, shows a gross distribution of $14,949.40.    

Box 2, Taxable amount, does not have an entry; blank.

Box 2b, Total Distribution box is checked

Box 7,  7 is entered and there are no other codes (e.g. M)

Box 15, my state and payer's state no. have an entry

That said,  what area of Turbotax do I make the entry into (i.e. which income, if appropriate)?

Based on the 1099-R, it doesn't appear the money is taxable.  How do I ensure this doesn't affect my taxes?

Lastly, I closed a couple of other insurance policies, but they were much smaller cash values. Consequently, 1099's were not issued.  How do I address these?

Thank you

[DavidD66]

Your life insurance policy’s cash surrender value may be taxable. Any amount you received that is more than your policy’s basis, or the amount you paid in premiums, is taxable income. In addition, if you had an outstanding loan, that amount could be taxable.   You should have received a final statement from the insurance company that shows you what you basis in the policy was, any outstanding loans, etc.  You will need that to determine your taxable amount.

Typically, insurance companies do not file Form 1099-R (they are not required) to report the surrender of a life insurance policy if it is reasonable to believe that none of the payment is taxable income.  Some or all of the amount reported on Form 1099-R is probably taxable.  You are safe to assume that the amounts you received from the surrender of the smaller policies for which you did not receive a Form 1099-R is not taxable.  

Once you know what your cost basis is, you can determine the amount, if any, of your proceeds is taxable.  To report your Form 1099-R, you will enter in the Retirement Income Section. From the Tax Home:

• Select Income
•  Scroll down to "IRA, 401(k) , Pension Plan Withdrawals (1099-R)"
• Click on the pencil icon
• Answer Yes to indicate you received a 1099-R
• On the Let's import your tax info" screen,  Scroll down and click on "Change how i enter my form"
• Click on the box with "Type it in myself"
• Select "Financial Institution or other provider (1099-R)" then Continue
• Enter your 1099-R

Once you know your cost basis and have determined how much of the amount in Box 1 is taxable, enter that amount in Box 2.  If none of it is taxable, enter $0.00

[dmertz]

If box 2b Taxable amount not determined is not marked, it likely means that the payer mistakenly left box 2a blank instead of having $0 in that box, believing (incorrectly) that blank means the same as zero.

[Manuel J]

David,

Thank you for the response!  I spoke with the insurance company about the 1099-R I received from them but, they don't provide detailed breakdowns (i.e. cost of insurance) and they don't send annual statements having detailed information.  The initial insurance agreement only provides the "total" monthly premium and terms.

Box 2a (Taxable amount) of the 1099-R is blank, but Box 1 (Gross distribution) does have a value in it.  

Box 2b (Taxable amount) of the 1099-R, Total distribution box is marked 'X', while Taxable amount not determined is blank.

After computing the premiums paid, and comparing to Box 1's entry, Box 1 is equal to about 50% of the premiums I paid over the period I had the policy.  In other words, << less than total premium payments.

That said, it appears the distribution is not taxable.

Lastly, when I spoke with the "other " insurance company, where the payout was much less, they told me they don't send a 1099, if the amount is less than $3,000 or $5,000; don't remember exactly which value.