Having taxes withheld does not exclude something from income nor does it keep it from being entered on your return. Your income tax return is meant to gather up all of your income and then determine how much tax you actually are liable for and how much you paid, then if tax on your income is less than what you paid, you pay in more, if the tax is more than what you paid in, then you will get a refund.
Life insurance payouts to a beneficiary are generally tax free. Annuities on the other hand are taxable income when you withdraw them.
However, if you received a 1099-R for both of them, you will need to enter them on your return. If the life insurance policy was a standard policy and should not be taxable to the beneficiary, then you would enter the 1099-R, then you will take a few steps to back out the income.
You will take the following steps to remove the income:
- Income
- Less Common Income
- Miscellaneous Income
- Other Reportable Income
- Answer Yes to Any Other Taxable Income
- Enter the description such as 1099-R received for nontaxable life insurance proceeds
- Enter the amount on the 1099-R as a negative number.
Life and Disability Insurance Premiums
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