February 2, 2017
Recently, the Joint Committee on Taxation (JCT) released the annual update for its tax expenditure list, which included the exclusion for death benefits for the first time. The JCT defines a tax expenditure as, “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” This move was foreshadowed by last year’s JCT tax expenditure report, which indicated that the committee was considering adding death benefits to the list. The JCT estimated the cost of the exclusion to be $128.3 billion over five years.
Despite the updated JCT tax expenditure list, it is unlikely that this latest report will impact the current development of tax reform legislation in Congress. Currently, our tax system does not tax income proceeds from any form of insurance—whether from life insurance, disability insurance, health insurance, homeowner’s insurance, or auto insurance—and Mezrah Consulting will continue to assist organizations educating the JCT about the current and appropriate tax treatment of death benefits. In December 2015, the JCT removed inside build-up from the tax expenditure list, recognizing its appropriate tax treatment. If you have any questions regarding income tax proceeds from death benefits, please call Mezrah Consulting at (813) 367-1111 or email us at MezrahClientServices@mezrahconsulting.com.
Source: AALU