No.
Nope.
Absolutely not.
Well … that is … unless …
It’s complicated. Sometimes. There’s no life insurance tax in Georgia or at the federal level under most circumstances. But there are some exceptions.
Let’s take it from the top.
Understanding Life Insurance and Taxes in Georgia
To be clear, it’s fairly unlikely that your beneficiaries will ever have to pay taxes on the death benefit they inherit from your policy. But there are circumstances, though relatively rare, in which the life insurance beneficiary is taxed in Georgia.
For example, there’s this thing called the income tax. While those taxes don’t originate in Georgia, they certainly affect Peach State residents. There are situations in which you or your descendants might have federal tax liabilities and even limited circumstances in which the state tax applies.
For a better understanding, we will start with a review of how life insurance works.
How Life Insurance Works in Georgia (and Elsewhere)
When you buy a life insurance policy, you purchase it based on its face value. That’s the total amount your beneficiaries will share as a death benefit. You can buy a policy in just about any amount. The premium you pay over time will be based on that face value. (The higher this amount, the more you’ll pay in premiums to keep the policy in effect.)
You can split the death benefit any way you wish, with as many beneficiaries as you want to include, whether they’re family members, charities or one or more non-traditional relationships.
Your two adult children might each take an equal split of half the life insurance proceeds, and your four grandkids equally share the other half.
Or your surviving spouse or significant other gets all of it. It’s up to you.
The premiums you pay are not additionally taxed, and, as mentioned, in most cases, your beneficiaries won’t be taxed. And that’s basically how this type of policy works.
But What Situations Might Trigger Taxation?
In most cases, your beneficiaries won’t ever have to think of their life insurance payouts, or death benefits, from your policy as tax liabilities. They probably won’t have to include it in their state or federal income tax forms.
But there are situations that you might need to study closer.
Estate Taxes and Inheritance Laws in Georgia
Let’s say that, rather than earmarking your policy to beneficiaries, it is instead paid into your estate. The plan is to add the death benefits to other financial sources of inheritance and then split the entire estate as you wish.
In this case, the estate and those policy benefits might be subject to taxation if — and this is a pretty big if — the total estate exceeds $13.99 million. That’s how much it takes to trigger a life insurance tax in Georgia.
Policies Transferred for Value
You’ll be subject to tax liabilities if you become a beneficiary of a policy as an investor.
Let’s say you pay a policyholder $50,000 today to become the sole beneficiary of their $100,000 policy. You will eventually clear $50,000 when you inherit that death benefit, but it will be subject to taxation on your benefits at both the state and the federal level, as most any other profit-making venture would be.
Interest Accrued Over Installment Payments
If you’re hesitant about entrusting the entire death benefit to a beneficiary, you might consider paying out the life insurance proceeds in installments. In this way, your beneficiary will have sufficient income over time but not so much at once that they might squander the entire amount.
Just keep in mind that this strategy will incur taxation at both the state and federal levels. The death benefit itself won’t be taxed, but the annual interest will be earmarked as normal income.
You Have Employer-Owned Life Insurance Policies
The purpose of such policies is to protect your business if a key employee dies unexpectedly. These are typically term life policies that might cover partners or other top management team members.
The thinking behind owning such a policy is that the death benefit will help replace finances lost in the short term while the company recovers from the loss of such an insider. This sort of plan will be subject to taxation in Georgia.
Tax Filing Tips for Life Insurance Beneficiaries
Leave nothing to chance. While in most cases, you won’t have to pay state or federal income taxes on the insurance payouts in Georgia, you’ve seen that there are exceptions. Share your situation with a qualified tax preparer or accountant to make sure you’re not subject to tax liabilities you know nothing about.
This might be especially important if you receive a substantial sum and want to be sure that you avoid trouble.