Life Insurance Cashed out - Are Proceeds taxable in New York State?

Question

Received 1099R but the software is treating my information as Pension and Annuity rather than proceeds from a terminated Insurance Policy.  1099R shows $900 as taxable, but I don't want to be assessed with a 10% penalty as I am only 58 and the software seems to be treating this as a pension/annuity.

sinn_7 · Answer

KristineS,

Thanks for your response - this was a normal insurance policy, all premiums paid by me for about 30yrs. The $900 represents interest above and beyond the total premiums paid over the life of the policy, which is reported on a 1099-R for some reason rather than on a 1099-Misc?  I will reach out to a support agent.

KristineS · Answer

Hi sinn,

In general, life insurance policies invested as an annuity have cash-value, which is subject to taxation. This is because a portion of the premium paid is invested to gain value over time. As with most investments, there are potential taxable consequences when the investment is distributed or withdrawn, including the penalty for under age 59.5 and early withdrawal.

When a life insurance policy with cash value is cashed-out or surrendered, that value is taxable. In your case, it sounds like $900 was a taxable portion. It also sounds like this policy was invested as an annuity, and therefore subject to the under age 59.5 rule for the 10% penalty to be applied.

To get additional assistance, where a support agent can review your return and entries, consider contacting support. Add Deluxe or Pro to chat live with a support agent.