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If the Cash Surrender Value more than the total premiums paid, and you surrender the policy (cancel it), the excess is earnings and taxable income. For example, if you paid $1,000 in policy premiums for 20 years and you cash in the policy and receive $30,000, you'll pay ordinary income tax on $10,000 in earnings. This is true for both Federal and Delaware.
If the Cash Surrender Value more than the total premiums paid, and you surrender the policy (cancel it), the excess is earnings and taxable income. For example, if you paid $1,000 in policy premiums for 20 years and you cash in the policy and receive $30,000, you'll pay ordinary income tax on $10,000 in earnings. This is true for both Federal and Delaware.
What if the policy was originally issued in Delaware, but the person lives in another state. Which state should they pay the state taxes to?
"Which state should they pay the state taxes to?"
To their state of residence at the time the proceeds are received.
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