Insurance 1099.... adding insult to injury

[old medic]

Not to cry our story, but its been a rough year for us. Me with a severe injury, Wife diagnosed with early-stage cancer and started treatment. Now we get a 1099 pushing $20K from a policy she had.... And I was worried about dealing with her raise to cover my ACA...
Afraid this is going to effect us financially a few years.

 

[badatmath]

Seems like when it rains it pours. Sorry OM.

 

[ivinsfan]

What kind of policy, are you saying you expected it to be tax free

 

[pb4uski]

+1. I'm confused.

 

[Montecfo]

Cashed in a life insurance policy?

 

[SecondCor521]

It's unclear what you're talking about, as others have said.

In some or many cases, payouts from an insurance policy are after-tax and therefore don't add to income. I'd recommend showing that 1099 to a local qualified tax preparer to find out if that $20K is taxable, partly taxable, or not taxable or tax free.

 

[target2019]

The codes on the 1099 are important

 

[DuluthGA]

If purchased with after tax dollars should be zero tax owed I believe

 

[MissMolly]

Since he mentioned cancer my guess is she had a cancer policy. I had one of those when I was w*rking.

 

[old medic]

If purchased with after tax dollars should be zero tax owed I believe

Correct, it's from 2 different policies that were paid for with pretax earnings.

This is something I didn't know, and several folks I've talked to...
Hate to think if it was a 1/4 million life policy... tax it 1st as income, then again as estate tax?

 

[jollystomper]

Here is the IRS tool for determining whether or not life insurance proceeds are taxable, based on the circumstances:

https://www.irs.gov/help/ita/are-the-life-insurance-proceeds-i-received-taxable

 

[old medic]

The codes on the 1099 are important

1099 MISC.... we got notification that we will receive one , but haven't gotten it yet.

 

[ivinsfan]

Cancer policy, what is it supposed to cover? Missed earnings? Hospital bills?

What's the coding on the 1099?

 

[cathy63]

Correct, it's from 2 different policies that were paid for with pretax earnings.

Is it a 1099-MISC with the amount in box 3? That's taxable income, but it sounds like you've had a lot of medical expenses this year so maybe enough deductions to offset it? That's the general theory with things like cancer policies. They help cover your medical expenses which are still deductible so you hopefully end up in the same financial place you would have been.

It does hurt when it comes to ACA subsidies though because the payout is included in your MAGI so you may have to pay back part of the subsidies you received. If you do, then the premiums you pay back on form 8962 are also a medical deduction on Schedule A.

This is something I didn't know, and several folks I've talked to...
Hate to think if it was a 1/4 million life policy... tax it 1st as income, then again as estate tax?

Well, if the life insurance was paid for with pre-tax money, then there's no "again". The estate tax would be the only tax in that case. Usually life insurance payouts are not treated as part of the estate though and are not taxed at all. It sounds like the payouts your wife received were not really life insurance, even though they might have been attached to a life insurance policy in some way.

 

[pb4uski]

Correct, it's from 2 different policies that were paid for with pretax earnings.

This is something I didn't know, and several folks I've talked to...
Hate to think if it was a 1/4 million life policy... tax it 1st as income, then again as estate tax?

Given that the estate tax exemption is currently $12.9 million per person I don't think you have to worry abut the second part.

 

[old medic]

Is it a 1099-MISC with the amount in box 3? That's taxable income,
It does hurt when it comes to ACA subsidies though because the payout is included in your MAGI

Haven't seen the actual 1099 yet...
The ACA is where we are gonna get hurt.

 

[old medic]

HUGE SIGH OF RELIEF.....
Was fearing that we would get hammered.... But managed to end up only owing Uncle Sam $132. Getting enough back from the state to about break even....

 

[jazz4cash]

Relief! Just the worry factor takes a toll, though.