Tax on proceeds from life insurance
How much tax on proceeds from life
insurance do I pay?
See also Federal Income Tax
on Life Insurance. Below is an example of how the federal
income tax on life insurance proceeds work.
Your husband has an insurance policy
which you are the beneficiary.
The face amount of
the insurance policy is $75,000.
As the beneficiary, you choose to
receive 120 monthly installments of $1,000 each.
Some of the life insurance proceeds are
taxable while the rest are tax free.
The excluded part of each installment is
$625 ($75,000 Ã· 120), or $7,500 for an entire year. The rest
of each payment, $375 a month (or $4,500 for an entire year),
is interest income to you.