Tax TreatmentQuestion 221 of 315
How is a lump-sum life insurance death benefit paid to a named individual beneficiary treated for federal income tax purposes?
a.Generally excluded from the beneficiary's gross income
b.Taxed as long-term capital gain
c.Taxed as ordinary income to the extent it exceeds premiums paid
d.Subject to a 10% additional tax if the beneficiary is under 59½
Explanation
IRC §101(a) excludes amounts paid by reason of the insured's death from the beneficiary's gross income. Interest credited after the date of death on installment payouts is the only piece that becomes taxable.
Law Reference: IRC §101(a)Practice all 315 questions free — no signup required.
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