Generally, the recipient of life insurance proceeds does not pay federal tax. The IRS covers this on Publication 525, attached below. From Publication 525, life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. However, interest income received as a result of life insurance proceeds may be taxable.
Check with a licensed tax professional to ensure that you owe no federal or state taxes on the life insurance proceeds.
Robert Hoffman is a tax attorney licensed in California. The information presented here is general in nature and is not intended as a substitute for legal advice. This posting does not create any attorney-client relationship with the author. For competent advice about your particular situation, consult your own attorney.
I agree with Mr. Hoffman. Insurance proceeds are generally received by the beneficiary free of federal income tax. If the amounts are small, and payments are prompt, you probably will not run into a situation where there is taxable interest. You should nonetheless run it by your tax practitioner at the appropriate time. Good luck to you.
The foregoing is a general answer based upon limited information, should not be construed as legal advice , and does not create an attorney-client relationship. It is the opinion of the writer alone. The author is licensed in Indiana and Ohio attorney only.
Mr. Hoffman is correct (and thorough). Life insurance is not taxable.
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