Life insurance proceeds rarely incur any form of income tax.
The proceeds can be taxed for estate and inheritance tax purposes.
Life insurance proceeds are included in the gross estate calculations for all deceased individuals. Any gross estates that have a total value exceeding $5.25 million can be subject to US Federal Estate Tax.
Additionally, some states impose either an estate tax or inheritance tax (or in some rare cases both).
These taxes have their own specific rules about the total amount and what might be taxable. You should consult additional resources concerning state specific estate and/or inheritance taxes for more information about how life insurance proceeds might be taxed in your state.
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The proceeds can be taxed for estate and inheritance tax purposes.
Life insurance proceeds are included in the gross estate calculations for all deceased individuals. Any gross estates that have a total value exceeding $5.25 million can be subject to US Federal Estate Tax.
Additionally, some states impose either an estate tax or inheritance tax (or in some rare cases both).
These taxes have their own specific rules about the total amount and what might be taxable. You should consult additional resources concerning state specific estate and/or inheritance taxes for more information about how life insurance proceeds might be taxed in your state.