What is considered taxable income on a surrendered life insurance policy?

[SweetieJean · Accepted solution]

You will get a 1099-R. Normally, only the excess of the cash value over the premiums paid is taxable.

[bwa]

If you cash in a life insurance policy you may have taxable income. The taxable income would be -

• the cash surrender value that you received, minus
• premiums paid over the life of the policy. On a mutual policy, premiums are net of participating dividends.

Generally, this only results in income on older policies. Your insurance company should send you a Form 1099-R for the income to report.

[bostonbenny]

I have not received a 1099-R from the Insurance Co. When are they required to send one out?

[bwa]

They were required to send one out by February 1.

If you didn't receive one, it's possible your payout wasn't taxable.  If in doubt, contact the insurance company.

[billjz1]

Is the taxable amount entered as a dividend or pension/IRA payout?  What section of Turbotax do you use?

[dmertz]

If the distribution is taxable, the insurance company will provide you with a Form 1099-R near the end of January.  You'll enter that under Retirement Plans and Social Security -> IRA, 401(k), Pension Plan Withdrawals (1099-R).  Box 2a of the Form 1099-R will have the taxable amount.

[billjans]

If you did not receive a 1099-R from your insurance company and you are confident that you would have received it if it was mailed to you, for example your address has not changed recently, then it is likely the 1099-R was not sent to the IRS either.