Taxes and tax form FAQs.
Are life insurance proceeds taxable?
The death benefit proceeds generally are not taxable; however, any interest paid is subject to federal and state taxation. If interest is greater than $10, this will be reported to the IRS through Form 1099-INT. We will not withhold tax from the interest unless:
- You have advised us that you are subject to backup withholding;
- You do not provide your Social Security Number or Tax Identification Number, or
- Miscellaneous interest is over $10 and we do not have your Social Security Number certified on a signed Death Benefit Proceeds Form or IRS Form W-9.
Are annuity proceeds taxable?
All or part of the death benefit proceeds on an annuity may be taxable. Generally, we are required to withhold federal income tax equal to 10% of the taxable portion of the payment. However, you may elect not to have withholding apply. The taxable portion and any withholding is reported to the IRS on Form 1099-R. In addition, some states require withholding on the taxable portion when Federal taxes are withheld. For more information regarding tax consequences, please consult your tax advisor as there may be options to defer the distribution of taxable payments.
I took a partial withdrawal from my annuity contract to pay the premiums on another insurance policy. Why am I receiving a Form 1099-R?
Although the funds were applied to another insurance policy, this is still considered a taxable distribution (disbursement) by the IRS and is reportable on a Form 1099-R.
To what does Box 5 “Employee Contributions or Insurance” on my Form 1099-R refer?
This refers to the portion of the distribution that is treated as a tax-free return of cost basis.
I earned interest on my annuity and did not receive a Form 1099-INT. Why?
Interest earned in an annuity is tax-deferred until the interest is withdrawn. If a withdrawal occurs and there is a taxable gain in the policy, then a Form 1099-R will be issued.
There was an “Ownership Transfer” on my annuity policy; will there be tax reporting?
Generally, New York Life does not report when there is an ownership change because there is no distribution being made from the policy. However, under certain circumstances, a transfer of an annuity policy may result in tax consequences. For this reason, the parties to the transaction should consult their own tax advisors prior to effecting a change of ownership.
If a policy has more than one owner, why does New York Life issue one Form 1099?
When a policy has more than one owner, the IRS permits the payer to issue only one Form 1099. Please speak with your tax advisor if receive a Form 1099 that reports more than your share of taxable income.
Can I repay my loan and reverse the taxes on a Modified Endowment Contract?
Generally, once the loan check is cashed, it is considered taxable income. New York Life can apply the returned monies as a loan repayment but the taxation stands as is.
I did a 1035 exchange and I received two Form 1099-Rs. Why?
If a policy loan is canceled in the exchange and the policy has a taxable gain then two Forms 1099R are produced, one for informational purposes, and one for reporting the taxable gain.
My policy lapsed and I received a Form 1099-R. If I choose to reinstate, will the 1099-R form be reversed?
Generally, no. However, there may be situations in which reinstating a lapsed policy will not result in a Form 1099-R being issued.
There was an “Ownership Transfer” on my life policy; will there be tax reporting?
No, it is our practice generally not to report any taxable gains on ownership changes. This is a matter between the parties to the transaction.
How does New York Life calculate taxable gain?
The taxable gain is generally the excess of the cash value (not reduced by loans) over the cost basis (premiums paid less any dividends withdrawn).
How is income reported on a Form 1099?
The actual forms you receive may look different from the official IRS forms, but the information they contain is the same (although it may be physically located in different places on the form). Some payers use a “substitute” form that meets all the IRS requirements.
All 1099 forms contain information about the “Payer” (who sent you the form) and the “Recipient” (that’s you). You should verify that this information is correct, especially the recipient’s Taxpayer Identification Number, which might be your Social Security Number or the Employer Identification Number if paid to a business, trust, or other non-natural person. If the payer or recipient information is not correct, contact the payer immediately and request a corrected form.
Each 1099 contains boxes for income and federal and state taxes withheld, if any. Each box is labeled to describe just what the amount is for. For example, Figure 1 above shows box 1 as income received as rents, box 7 as income for non-employee compensation, and box 4 as federal income tax withheld. Each different kind of 1099 has the boxes labeled according to the types of payments you might receive from that payer. A 1099-DIV would have ordinary dividends in box 1a, qualified dividends in box 1b, foreign tax paid in box 6, and federal income tax withheld in box 4. Regardless of the box number, the name of the payment is important to how you report that payment on your federal and state income tax returns. Verify that the amounts reported are correct. You should match the totals to your personal financial records, pay stubs, bank deposits, etc. If any of these amounts are incorrect, contact the payer immediately and request a corrected form 1099. You may not receive a 1099 for payments you received if the amount falls below the IRS minimum for certain types of payments.
Where do you report 1099 income?
Where you report this information on your income tax return depends on the information provided in each box on the form you received. For example, the information on a 1099-MISC might be reported on Form 1040 Schedule E if the income is for rents or royalties, on Form 1040 Schedule C if it’s for non-employee compensation, e.g., commissions earned. The back of your 1099 should contain specific instructions detailing which tax forms and lines you need to report the items in each box. Get a good reading glass&mash;the print is often very small.
If you received a 1099 form, then the payer has reported to the IRS that they paid you the amount indicated. The IRS may match 1099 information to your 1040 filing to assure that you paid the proper amount of taxes for payments received. Most taxpayers receive: 1099-B, 1099-DIV, 1099-OID, and 1099-INT from brokers, mutual funds, banks, credit unions, and insurance companies for security transactions, dividends, or interest income. For individual taxpayers, these are reported on Form 1040 Schedules B and D. Form 1099-MISC is a multipurpose form and usually goes with Form 1040 Schedules C and E, depending upon the payment type. Recipients of Form 1099-R need to report income on Form 1040 as distributions from pensions, annuities, insurance contracts, or other retirement plans. Pay careful attention to this form as part of your distributions may be tax-free, or because you may be subject to a premature distribution penalty. Verify that the codes and checked boxes are correct by reviewing the instructions you receive with this form and matching them to your own records. Form 1099-G reports certain government payments such as state income tax refunds and unemployment payments. Unemployment payments are reported on Form 1040 while state income tax refunds may or may not be taxable. Be sure to follow your Form 1040 instructions carefully to avoid overpaying taxes.
You are less likely to get other 1099 forms. Forms 1099-A, 1099-C, and 1099-CAP relate to certain complex business transactions; while 1099-S is for real estate transactions. Forms 1099-H, 1099-LTC, 1099-SA, and 1099-Q are for insurance payments for health, long-term care, or for medical or qualified education programs. If you receive one of these 1099 forms, you are probably already working with a tax preparer or accountant who is better able to determine how best to treat these distributions for income tax purposes. However, if you choose to do it yourself, you will find detailed instructions along with the form in very fine print. Be sure to speak with your own tax advisor if you have any questions. New York Life does not provide tax, accounting, or legal advice.
I received proceeds from a death claim. Why did I receive a Form 1099-R and/or a Form 1099-INT?
Interest and/or gains earned in an annuity contract are generally not taxable when earned, but are taxable when distributed from the contract either to the owner during the owner’s life or to the beneficiary after the owner’s death. The Form 1099-INT, received is for miscellaneous interest paid from the date of death until the death benefit is paid. The Form 1099-R received represents taxable gain in the policy.
If you’re like most taxpayers, you receive one or more 1099 forms at the beginning of each year. Payers should send or deliver their 1099s to you by January 31 of each year. And if ’re like most taxpayers, you find them a bit confusing, and with good reason. There are 16 different kinds of 1099 forms, named 1099-A, -B, -C, -CAP, -DIV, -G, -H, -INT, -LTC, -K, -SA, -OID, -PATR, -Q, -R, and -S. Fortunately, most taxpayers don’t receive all 16 forms, but even five or six can be daunting. The good news is that if you understand one, you can understand them all.
An IRS Form 1099 is an information return filed with the IRS by an individual, a company, or an agency that makes a reportable payment for you, which, in turn, you are required to report on your income tax returns and possibly pay income tax. The tricky part is figuring out where you need to report this income on your federal and state income tax returns. Fortunately, each 1099 form has a specific set of instructions, but they are written in IRS language, are in small print, and are not always easy to follow.
Neither New York Life Insurance Company or its agents provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.