My father passed away and he had a life insurance policy...do I pay taxes on it when I collect?
I'm in MN...not sure if that matters.
I'm sorry to hear about your father. I hope you are doing OK.
You should not have to pay tax on the proceeds of your father's life insurance policy.
Here is a complete review of the tax implications on a life insurance policy:
When a person insured by a life insurance policy dies during the term of the policy the proceeds are paid to the beneficiary or beneficiaries.
Life insurance death benefit proceeds are usually not subject to state and federal income taxation. But, if there is no beneficiary, the death benefit proceeds of the life insurance policy may be included in the estate of the deceased. Then, it may be subject to state, federal and inheritance taxes.
Also, the proceeds may be subject to federal estate taxation.
If you own all or part of the life insurance policy at the time of your death, the proceeds may be included in your gross estate for federal estate tax purposes.
Also, federal gift taxes and state inheritance taxes may apply to life insurance policy proceeds under certain circumstances.
You may want to consult a tax advisor regarding your questions about any estate, income and gift taxes related to any life insurance policies you own or are considering buying.
Also, your insurance agent should be able to tell you if your life insurance policy benefits will be taxable.
Finally, different taxes may apply to the benefits paid by your life insurance policy if the death benefit is paid to the beneficiary in installments, instead of as a lump sum. The interest portion, if any, of each installment is usually treated as taxable to the beneficiary at ordinary income tax rates, while the remaining principal portion is tax-free.
I hope that helps! Take care and best of luck!
You do not pay taxes because it is considered a "benefit", not income.
http://obe231.blogspot.com
Insurance proceeds are not taxable.
Yes, it is a lovely thing called the death tax.
It all depends on whose name was on the policy. If your father was the insured and also the owner of the policy (he bought it, he made the payments, etc.) then you will owe State and Federal Income Taxes on it.
If the policy was in your name and he was the insured then no, you will not owe any taxes.
If it was a term policy then the premium was paid with taxed money. If the policy allowed for interest, then the premium was most likely paid with pre-tax money, and therefor you would have to pay taxes. The goverment has to get "theirs" either before or after. Such an awful thing to deal with while mourning a loved one. My condolences to you and your family.
Answers:
no no no
The beneficiary is not taxed on the death benefit. The death tax applies to the estate but not the the life insurance policy.
If you have questions about the death tax check out this website. http://www.deathtax.com/deathtax/faq.htm...
No. Or rather, if you are the beneficiary of the policy, it's not taxable income. If the beneficiary is "the estate of Joe Smith", it becomes subject to inheritance taxes.