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Group term policy payout taxable?

One of the other counselors at the TaxAide site I volunteer at saw this. (It was a different day than I volunteer so I haven't seen the W-2 in question):

[Taxpayer] also got a large life insurance payout in 2011, all taxable, on a W2 form (like salary) after her husband's death in 2010. [Taxpayer] has challenged the bank [presumably the decendent's employer], but always gets the answer it's taxable.

So what could make this taxable? Even when the employer pays 100% of the premiums, the imputed value of the coverage is taxable income to the employee, so why would the payout be taxable? Can this happen when it's some kind of non-group or otherwise special policy?

Reply to
Rich Carreiro
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Followup...

The volunteer gave me additional info:

Regarding the life insurance, the payer is "[Payer's Name] Suppl Pen[sion] PL[an] Non Qua[lified]" located [City, State]. This was not [taxpayer's spouse's] employer, taxpayer says. I used the word "bank" too loosely. The payout is in boxes 1 and 16 (MA), and federal and state taxes are withheld. Boxes 3 and 5 are empty. Box 11 says "nonqualified plans"

So I guess it is what it is. Never had one of these at our site before.

Reply to
Rich Carreiro

Probably from a nongovernment Sec. 457(b) plan. There's a general rule (there are exceptions), that payments relating to compensation of a decedent that are paid in the year after death go in Box 3 (Other Income) of a 1099-MISC. So, the fact that this payment was reported on a W-2 in the year after death, would be a clue that it had nothing to do with the decedent's compensation for the year of death.

Reply to
Alan

This is a nonqualified pension payment, which does not qualify for 1099R treatment, but in most other respects acts line a

1099R. That means not qualified for EIC and not qualified for IRA contributiion. (In Ohio, not subject to municipal income tax.)
Reply to
Arthur Kamlet

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