Usually no. The IRS says life insurance money you get as a beneficiary is generally not counted as income, and you do not have to report it. Any interest paid on it is taxable.
If you get a lump sum because someone died, it is generally tax free.
If you take the money in payments over time, the interest part is taxable. Report it as interest.
Life insurance from work has its own rule. If your employer pays for more than $50,000 of coverage, the cost of the extra amount counts as income to you.
Money paid early to someone who is terminally or chronically ill can also be tax free if certain rules are met.
For special cases, like selling a policy or cashing one in, ask a tax pro.
- Lump sum to a beneficiary: generally not taxed
- Interest on the payout: taxed
- Work coverage over $50,000: the cost counts as income
- Early payouts for terminal illness: may be tax free
More questions
Do I need to report the payout on my taxes?
Generally no, unless you got interest. Report the interest.
What if I pick monthly payments instead of a lump sum?
The interest part of each payment is taxable.
Is the money from my job's life insurance taxed?
The payout to your family is generally not. The cost of employer paid coverage over $50,000 is added to your income while you work.
Words to know
- Beneficiary
- The person you name to get the death benefit when you die. You can name more than one.
