I'm surprised nobody mentioned that Person B should be careful about timing. If Person A died recently and Person B immediately gives the money to Person C, the IRS might view this as trying to circumvent Person A's wishes. Not saying it's illegal, but in my experience (I went through something similar), it's better to wait a few months between receiving the insurance proceeds and gifting them to someone else. Makes it clearer that these are separate transactions.

This is such a helpful discussion! I'm dealing with a similar situation right now where my aunt left me as beneficiary on her policy, but I know she would have wanted some of the money to go to my cousin who helped care for her. Reading through all these responses, it sounds like the key points are: 1) The insurance proceeds themselves aren't taxable to me, 2) Any gifts over $19,000 require filing Form 709 but probably won't result in actual taxes owed, and 3) There are strategies like gift splitting with my spouse or spreading payments over multiple years to minimize paperwork. The timing point about waiting a few months before making the gift is really smart advice too. I hadn't thought about how immediate transfers might look to the IRS. Thanks everyone for sharing your experiences - this community is incredibly knowledgeable!

Has anyone used the W-4 Tax Withholding Estimator on the IRS website? I'm in a similar situation and wondering if it's worth the trouble of filling it out.

I went through this exact same situation when I switched from a $48k job to a $95k position in March last year. What really helped me understand what was happening was looking at my pay stub breakdown more carefully. Your new employer is definitely withholding as if you'll make the full $102k for the entire year - they have no way of knowing about your previous income unless you specifically account for it on your W-4. Since you only started in February, you'll actually earn about 11/12 of that $102k plus whatever you made in January at your old job. This means your actual annual income will be significantly less than what your current employer is using for withholding calculations, so you should expect a decent refund. In my case, I got back about $1,800 more than I expected because of this overwithholding situation. If you want to be more precise, you can use the IRS withholding estimator or update your W-4 to account for your actual projected annual income from both jobs combined. But honestly, if you're planning to use that refund for something specific like a down payment, the overwithholding might work in your favor as a forced savings plan.

One thing to consider is that if you do owe taxes, you'll pay at your ordinary income tax rate, not capital gains rates. I surrendered a policy last year and was surprised by the tax bill since I'm in the 32% bracket. Might affect your decision if you're in a high tax bracket.

This is a great question and I can see you've gotten some solid advice already! Just wanted to add a few practical considerations from someone who went through this recently. First, definitely request that premium history statement from your insurance company as others mentioned - you'll need it for accurate tax calculations. When I did this, I was pleasantly surprised to find that the total premiums paid over the decades were actually close to the surrender value, so my tax hit was minimal. Second, timing matters. If you're expecting a bonus or other income that might push you into a higher bracket this year, you might want to consider whether surrendering in January of next year could save you on taxes. Also, don't overlook the potential for quarterly estimated tax payments if the taxable portion is significant. The IRS expects you to pay taxes on this income during the year it occurs, not just when you file your return. One last thought - if you do decide to go the surrender route, make sure you understand any surrender charges the policy might have. Some whole life policies have surrender periods that could reduce your cash value, though after 30+ years this is less likely to be an issue. Good luck with whatever you decide!

Your in the same boat as me! My preparer messed up everything and ghosted me. Been waiting 6 months for my refund now because of 'verification' 😤

This is exactly why I always double-check everything before leaving the tax office! Those kinds of errors can definitely cause delays - the IRS computer systems flag mismatches between names and SSNs automatically. You should definitely push back harder on the preparer to fix this. They have a responsibility to correct their mistakes, and "the IRS already accepted it" doesn't mean the errors won't cause problems later. Document everything in case you need to file a complaint with their licensing board.

in the same boat rn... my preparer messed up my kids bday and now im stuck in verification hell

Wow, this is exactly why I'm nervous about using a tax preparer! The fact that they just brushed off your concerns is really unprofessional. I'd definitely listen to Giovanni's advice about filing the 1040X - better safe than sorry. Have you considered switching to a different preparer for next year? This kind of carelessness with basic info like names and addresses would make me lose trust completely.