Do I have to pay tax on life insurance dividends?

Generally life insurance dividends are tax free and you do not report them on your tax return. That's because life insurance dividends are a return of premiums that you previously paid for the life insurance policy and the life insurance dividends reduce the cost of your life insurance policy and are not taxable on your tax return until they exceed the net premiums you paid for the life insurance policy. Life insurance dividends, and interest on the life insurance dividends, on Veterans life insurance are tax free and you do not report them on your tax return.

Dividends on the common stock of a life insurance company, and interest on the corporate bonds of a life insurance company, are taxable and you must report them on your tax return.

If you deducted life insurance premiums in your business from your tax return and now receive life insurance dividends you should reduce your current tax years life insurance premium tax deduction on your tax return by the amount of the life insurance dividends, or claim them as taxable income on your tax return.

Related tax information about life insurance dividends

Tax Directory Topics:
Is interest earned on life insurance policies taxable on my tax return?
Are life insurance death benefits taxable on my tax return?
Is interest on veterans insurance dividends taxable on my tax return?
Income Related Questions and Answers

IRS publications about life insurance dividends:
Additional information on life insurance dividends and dividend income can be found in IRS Publication 550,

Investment Income and Expenses. For more information about insurance proceeds received in installments refer to IRS Publication 525,

Taxable and Nontaxable Income. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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