Need help with tax problem from insurance company

Mar 20, 19 5:18

Post #1 of 23 (1826 views)

I'm hoping someone here can tell me what's going on and tell me where to get it straightened out.

My wife and I had life insurance for 17 years and cancelled it at the end of last year.

I paid $84.50 per month for a total of $17,233

The payments were made from our checking account with money that was already taxed

After my wife had already filed this year with TurboTax, the insurance company sent us both 1099-R froms and when we called they said that I owe taxes on the money returned form the life insurance policy and that my wife doesn't.

I got a check for $8,240, with a taxable amount of $6,043.30 and $2,197.00 in box 5 on the form; designated to a Roth or insurance premiums

My wife got a check for $7,252.58 and her 1099-R says that $5,787.34

The insurance company says that I owe income tax on my refund but my wife's 1099-R was a mistake and to disregard it. Both policies were the same and the company has been notorious for making mistakes and that's why we canceled the policies

I just called the IRS helpline and they said that they don't help with this. The woman said ''If the insurance company says you owe taxes, then you do owe taxes''.

The money returned is from the savings portion of the insurance policy. How can this be taxable?

So where do I go from here? The IRS seems to be no help.

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''Sweeney - you can both crush your AG *and* cruise in dead last!! 😂 '' Murphy's Law

Last edited by: Sweeney: Mar 20, 19 5:27

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 5:20

Post #2 of 23 (1812 views)

I don't get it. You do your taxes not the insurance company. Do them the way you think it should be done and file

Re: Need help with tax problem from insurance company [PeterP] [ In reply to ]

Mar 20, 19 5:23

Post #3 of 23 (1806 views)

PeterP wrote:

I don't get it. You do your taxes not the insurance company. Do them the way you think it should be done and file

Great advice if you want to get fines interest and penalties

My advice talk to an accountant. You said the money is from thr savings side so may be capital gains or something like that.

Re: Need help with tax problem from insurance company [PeterP] [ In reply to ]

Mar 20, 19 5:34

Post #4 of 23 (1793 views)

PeterP wrote:

I don't get it. You do your taxes not the insurance company. Do them the way you think it should be done and file

The IRS is copied on the 1099 sent by the insurance company. The IRS is supposed to compare their tax filing against reported 1099 income. Should that happen the figures need to match or they will believe you under reported your income. Remember, the IRS operates as a guilty until proven innocent agency. Best to seek an accountant in this instance.

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 5:35

Post #5 of 23 (1791 views)

Any gains over the premiums you paid are taxable when a policy is surrendered. Whole life of VUL are going to be taxed the same way.

IRS can't help you, all they can go on is what the 1099 says which is that you owe taxes. They're not going to get into how the insurance company calculated that or whether they made a mistake.

Only way to resolve this is to work with your insurance company and find out how they calculated this. You should have statements showing the gains in your policy, start there and see if it can be tied to the 1099.

Re: Need help with tax problem from insurance company [jkuo] [ In reply to ]

Mar 20, 19 5:55

Post #6 of 23 (1769 views)

jkuo wrote:

Any gains over the premiums you paid are taxable when a policy is surrendered. Whole life of VUL are going to be taxed the same way.

Only way to resolve this is to work with your insurance company and find out how they calculated this. You should have statements showing the gains in your policy, start there and see if it can be tied to the 1099.

This is what bugs me, I paid in over $17000 and got back a little over $8000

I could understand if there was some tax on interest earned.

And then there is the issue of them sending a 1099 to my wife and telling her it was a mistake and to disregard it.

---------------------------
''Sweeney - you can both crush your AG *and* cruise in dead last!! 😂 '' Murphy's Law

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 6:08

Post #7 of 23 (1752 views)

That's why you need to look at your statements. Depends on what sort of policy you have. For permanent type policies (not term) a portion of your payment went toward the premium and the rest gets invested or credited with interest. Typically the majority of the premium payment goes toward the insurance as it should. So the remainder is likely what is being shown here.

Sweeney wrote:

jkuo wrote:

Any gains over the premiums you paid are taxable when a policy is surrendered. Whole life of VUL are going to be taxed the same way.

Only way to resolve this is to work with your insurance company and find out how they calculated this. You should have statements showing the gains in your policy, start there and see if it can be tied to the 1099.

This is what bugs me, I paid in over $17000 and got back a little over $8000

I could understand if there was some tax on interest earned.

And then there is the issue of them sending a 1099 to my wife and telling her it was a mistake and to disregard it.

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 9:07

Post #8 of 23 (1686 views)

I am not qualified to give tax advise. Blah blah blah. Here is what I would do:

Is Box 2B checked? That is where it is written, "Taxable amount not determined"

If it is, you have been given the proper advice above. DO the taxes the way you think they should be done.

Re: Need help with tax problem from insurance company [ajthomas] [ In reply to ]

Mar 20, 19 10:18

Post #9 of 23 (1641 views)

No, box 2b is not checked. What does that mean? Is it any help to me?

Our taxes were filed in early February, an soon as my wife thought she got all the forms. Then near the end of February we got these forms.

---------------------------
''Sweeney - you can both crush your AG *and* cruise in dead last!! 😂 '' Murphy's Law

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 11:09

Post #10 of 23 (1592 views)

I'm not an expert being a CFO and not with a CPA and then the best would be to check with an expert and the Insurance but in my opinion with the premium you paid during the year you should not pay any tax.
The rule in IRS with surrendering of a policy for cash is that you pay taxes on any proceeds that are more than the cost of the life insurance policy. Your cost is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, etc. You should receive a Form 1099-r showing the total proceeds and the taxable part and it needs to report these amounts on line 4a and 4b of form 1040.
you can check eventually this publication for IRS. In specific page 22
https://www.irs.gov/pub/irs-pdf/p525.pdf

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 13:16

Post #11 of 23 (1546 views)

Sweeney wrote:

1) This is what bugs me, I paid in over $17000 and got back a little over $8000

2) I could understand if there was some tax on interest earned.

3) And then there is the issue of them sending a 1099 to my wife and telling her it was a mistake and to disregard it.

1) You paid for the insurance.

2) It sounds like you had whole life insurance and when you cancelled it they cashed out your "profits" and that is the part you owe taxes on -- your monthly payments were both for the insurance product and the investment potion of the product and now you owe tax on the amount that part grew.

3) That part doesn't make sense if you had separate policies.

Re: Need help with tax problem from insurance company [Spiridon Louis] [ In reply to ]

Mar 20, 19 13:59

Post #12 of 23 (1506 views)

Everything I find and online and what I got when I talked to my lawyer a couple of weeks ago says that ''profits'' would be if I got back more than I paid to the insurance company. I paid the insurance company about $17,400 and when I closed out the account I got back a little over $8000. Everything I can find online says that I don't owe any tax on that.

Crazily, most sources say that there is nothing I can do other than keep talking to the insurance company. My wife sent another email to them this morning asking for an explanation. I guess we will have to keep working with the inurance company.

---------------------------
''Sweeney - you can both crush your AG *and* cruise in dead last!! 😂 '' Murphy's Law

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 14:41

Post #13 of 23 (1495 views)

Does your policy describe surrender value and computational basis of gain? I.e. What was cost of term policy and any money returned to you would be considered interest or insurances companies use of your money......might be on approach

Re: Need help with tax problem from insurance company [tyrod1] [ In reply to ]

Mar 20, 19 14:51

Post #14 of 23 (1484 views)

Then found this:

The surrender of your policy may result in taxable gain
If you surrender your cash value life insurance policy, any gain on the policy will be subject to federal (and possibly state) income tax. The gain on the surrender of a cash value policy is the difference between the gross cash value paid out (plus any loans outstanding) and your basis in the policy. Your basis is the total premiums that you paid in cash, minus any policy dividends and tax-free withdrawals that you made.

Re: Need help with tax problem from insurance company [tyrod1] [ In reply to ]

Mar 20, 19 15:18

Post #15 of 23 (1459 views)

tyrod1 wrote:

Then found this:

The surrender of your policy may result in taxable gain
If you surrender your cash value life insurance policy, any gain on the policy will be subject to federal (and possibly state) income tax. The gain on the surrender of a cash value policy is the difference between the gross cash value paid out (plus any loans outstanding) and your basis in the policy. Your basis is the total premiums that you paid in cash, minus any policy dividends and tax-free withdrawals that you made.

Yes, and I paid in over $17,000 and got back just over $8,000. And it looks like there is nothing I can do except beg them to fix their mistake.

Or I can sue them.

---------------------------
''Sweeney - you can both crush your AG *and* cruise in dead last!! 😂 '' Murphy's Law

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 15:20

Post #16 of 23 (1457 views)

Sweeney wrote:

This is what bugs me, I paid in over $17000 and got back a little over $8000

I could understand if there was some tax on interest earned.

I really hope you don't think you paid $17,000 and only got back $8000. If so it implies you don't know what you were buying.

In reality you paid $12,000 for life insurance, and $5k invested which grew to your $8k and therefore you owe tax on $3k (I might have that backward and you invested $3 that grew to $8 and you owe tax on the $5)

Just Triing
Triathlete since 9:56:39 AM EST Aug 20, 2006.
Be kind English is my 2nd language. My primary language is Dave it's a unique evolution of English.

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 15:21

Post #17 of 23 (1455 views)

Sweeney wrote:

Everything I find and online and what I got when I talked to my lawyer a couple of weeks ago says that ''profits'' would be if I got back more than I paid to the insurance company. I paid the insurance company about $17,400 and when I closed out the account I got back a little over $8000. Everything I can find online says that I don't owe any tax on that.

Crazily, most sources say that there is nothing I can do other than keep talking to the insurance company. My wife sent another email to them this morning asking for an explanation. I guess we will have to keep working with the inurance company.

You seem to be ignoring the part of the $17,000 that went to the product you bought, there’s a cost to providing the insurance and they’re not giving that back to you, nor is it tax deductible. I have term life, it’s an expense. A portion of your whole life was as well. It sounds like you did get back more than you paid in, minus the insurance expense.

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 15:21

Post #18 of 23 (1455 views)

Sweeney wrote:

Our taxes were filed in early February, an soon as my wife thought she got all the forms. Then near the end of February we got these forms.

That parts not a biggie you just file an amended form, turbo-tax can do that for you.

Just Triing
Triathlete since 9:56:39 AM EST Aug 20, 2006.
Be kind English is my 2nd language. My primary language is Dave it's a unique evolution of English.

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 15:23

Post #19 of 23 (1452 views)

Sweeney wrote:

Everything I find and online and what I got when I talked to my lawyer a couple of weeks ago says that ''profits'' would be if I got back more than I paid to the insurance company. I paid the insurance company about $17,400 and when I closed out the account I got back a little over $8000. Everything I can find online says that I don't owe any tax on that.

Crazily, most sources say that there is nothing I can do other than keep talking to the insurance company. My wife sent another email to them this morning asking for an explanation. I guess we will have to keep working with the inurance company.

Pretty sure you got back xx yrs of insurance.. that was not free, part of the $17,400 went to pay for that insurance.

Just Triing
Triathlete since 9:56:39 AM EST Aug 20, 2006.
Be kind English is my 2nd language. My primary language is Dave it's a unique evolution of English.

Re: Need help with tax problem from insurance company [DavHamm] [ In reply to ]

Mar 20, 19 16:28

Post #20 of 23 (1428 views)

DavHamm wrote:

Sweeney wrote:

This is what bugs me, I paid in over $17000 and got back a little over $8000

I could understand if there was some tax on interest earned.

I really hope you don't think you paid $17,000 and only got back $8000. If so it implies you don't know what you were buying.

In reality you paid $12,000 for life insurance, and $5k invested which grew to your $8k and therefore you owe tax on $3k (I might have that backward and you invested $3 that grew to $8 and you owe tax on the $5)

This is correct if you've guessed right on his policy (and I think you have). These products are after-tax investments but they grow tax free so you pay taxes when you draw them down - including if you surrender them early.

I've been through this through I did it deliberately.

"Are you sure we're going fast enough?" - Emil Zatopek

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 20, 19 22:48

Post #21 of 23 (1380 views)

Sweeney wrote:

The insurance company says that I owe income tax on my refund but my wife's 1099-R was a mistake and to disregard it.

if the 1099-R was a mistake they need to issue a corrected 1099 (perhaps one showing zero). you will be liable for the tax on the income that is showing on the 1099. if it's wrong you need to get it corrected.

if you have any recent statements from the insurance company look to see if it lists "basis" on the statement. most likely the statements will show a "cash value" and a "basis"

the cash distribution minus your basis equals your taxable gain.

I agree with the others - this was an insurance product (like whole life) that had a life insurance component and an investment component. the investment component was tax deferred while he held the product, but since he cashed out, that deferral has ended.

Re: Need help with tax problem from insurance company [DavHamm] [ In reply to ]

Mar 21, 19 2:21

Post #22 of 23 (1357 views)

I'm not complaining that I didn't get my $17,400 back and I do realize that the whole life policy has a savings component. The problem right now is that the insurance company won't explain how they came up with the $6700 taxable figure.

They have three numbers on the 1099-R; Total $8240.00, Taxable $6043.00, designated to a Roth or insurance premiums $2197.00

I really don't find it believable that in the 17 years of the policy, I contributed $2197.00 to the savings component and that grew to $8240. Could they be saying that the interest is on the total of $17,400? This is the big problem, they won't explain how they came up with this.

---------------------------
''Sweeney - you can both crush your AG *and* cruise in dead last!! 😂 '' Murphy's Law

Re: Need help with tax problem from insurance company [Sweeney] [ In reply to ]

Mar 21, 19 5:46

Post #23 of 23 (1325 views)

Must be a trump policy...pull numbers out their arse.

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