Both 1099-R and 1099-INT received from life insurance policy cash out


J

jefforum

I terminated a life insurance policy that had a cash value (approx. $20,700) in 2013. As expected, I received a 1099-R that showed this distribution in box 1, the amount of premiums I had paid ($10,200) in box 5, and the taxable amount ($10,500) in box 2.

However the insurance company also sent me a 1099-INT that has an amount of interest reported in box 1 ($10,200) that is similar to, but not quite the same, as the taxable amount reported on the 1099-R. When I contacted the insurance company about why they issued a 1099-INT they told that IRS regulations require them to, but that the amount reported on the 1099-R is what I will need to pay taxes on. They are going to send me a letter (not yet received) stating that only the amount on the 1099-R is taxable and also will explain the difference in the amounts on the 2 forms.

I'm not sure what to do at this point as I'm not entirely comfortable that both amounts are being sent to the IRS and the IRS will have no way of knowing that the amount on the 1099-INT is not something I should be taxed on.
 
A

Alan

I terminated a life insurance policy that had a cash value (approx. $20,700) in 2013. As expected, I received a 1099-R that showed this distribution in box 1, the amount of premiums I had paid ($10,200) in box 5, and the taxable amount ($10,500) in box 2.

However the insurance company also sent me a 1099-INT that has an amount of interest reported in box 1 ($10,200) that is similar to, but not quite the same, as the taxable amount reported on the 1099-R. When I contacted the insurance company about why they issued a 1099-INT they told that IRS regulations require them to, but that the amount reported on the 1099-R is what I will need to pay taxes on. They are going to send me a letter (not yet received) stating that only the amount on the 1099-R is taxable and also will explain the difference in the amounts on the 2 forms.

I'm not sure what to do at this point as I'm not entirely comfortable that both amounts are being sent to the IRS and the IRS will have no way of knowing that the amount on the 1099-INT is not something I should be taxed on.
Question: Is it possible to receive both a 1099-INT and 1099-R each with
taxable income from an insurance company when you surrender your policy?

Answer: Yes. It all depends on what kind of policy we are discussing.

Is this what happened to you? I have no idea.

Here is how I remember this works. If you just accumulated dividends
(i.e., they were not paid out, nor did you use them to buy more
insurance) then any annual interest on those accumulated dividends would
have been reported to you as taxable income each year. When those
accumulated dividends are paid out at surrender, they are reported on a
1099-INT as interest income. The CSV of the policy would reflect your
premiums paid (amount in Box 5 of the 1099-R) and investment gains.
Think of these as capital gains if they had been held in a taxable
investment account. So.... you could have gains reflected on a 1099-R
and accumulated unpaid dividends on the 1099-INT.
 
J

jefforum

As a follow up...

After a bit of back and forth with the life insurance company, they agreed that the 1099-INT was issued in error and have now sent out a corrected 1099-INT showing $0 interest paid.
 

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