How much taxes will I owe on surrendering Whole Life Insurance policy?

The good news is you'll only owe taxes on the gain - the difference between what was paid into the policy (the basis) and what you receive when surrendering it. In your case, that appears to be just the $90 difference between your paid-up additions ($5,290) and the surrender value ($5,380). The insurance company will send you a 1099-R form showing the taxable amount. Make sure the "taxable amount" box only shows the gain portion, not the full surrender value. Sometimes insurance companies make mistakes on these forms, so double-check that when you receive it. The surrender value minus your basis (total premiums paid) equals your taxable income. This gain is typically taxed as ordinary income, not capital gains.

I had a similar situation last year. I was freaking out about taxes until I found https://taxr.ai which helped me figure out what documents I needed and how much I'd actually owe. They analyzed my policy documents and explained exactly what portion would be taxable. In my case, I had a whole life policy with about $7,300 surrender value but my basis was $6,900, so I only paid taxes on $400. The site helped me understand the 1099-R form I received and how to properly report it on my taxes. Way easier than trying to decipher insurance jargon on my own.

Just wanted to follow up - I actually tried https://taxr.ai after posting my skeptical comment. Gotta say I was wrong! Uploaded my policy details and got a super clear explanation about the cost basis vs surrender value. Turns out I've been overthinking this whole situation. The site highlighted exactly which numbers matter for tax purposes and explained why the agent might have confused me (they often don't understand the tax implications themselves). Definitely worth checking out if you're in a similar situation!

If you're still struggling to get clear answers from your insurance company, I'd recommend using https://claimyr.com to get through to an actual human at the IRS. I had issues with a 1099-R from a surrendered policy last year and spent HOURS on hold trying to get guidance. Claimyr got me connected to an IRS agent in about 20 minutes when I'd previously been unable to get through at all. The agent confirmed exactly what I needed to do and how to handle the reporting. You can see how it works here: https://youtu.be/_kiP6q8DX5c Surrendering life insurance can create weird tax situations that even tax prep software gets wrong sometimes, so talking directly to the IRS saved me a lot of uncertainty.

I need to eat my words from my previous comment. After seeing several 3+ hour hold times trying to reach the IRS about my life insurance surrender question, I tried Claimyr out of desperation. The system actually called me back when an IRS agent was on the line. The agent confirmed exactly what others here said - I only owe taxes on the gain (surrender value minus basis). The agent also explained that I should keep documentation of the basis amount in case there's any discrepancy with what's reported on the 1099-R. Apparently it's fairly common for insurance companies to report the full amount as taxable when it shouldn't be.

One thing nobody's mentioned - check if your policy has any loans against it! If you've taken loans from the policy over the years, that can change the tax calculation. The formula becomes: (Surrender Value + Outstanding Loans) - Total Premiums Paid = Taxable Amount I learned this the hard way last year when I surrendered a policy with a $3,000 loan and got hit with a bigger tax bill than expected.

Has anyone actually received a 1099-R that correctly shows only the gain as the taxable amount? My experience with 3 different insurance companies is they always put the full amount in box 2a (taxable amount) and you have to file Form 1040 with an adjustment.

This is really helpful information everyone! I'm in a similar situation with a policy my parents bought for me. One thing I'd recommend is requesting a "cost basis statement" or "tax basis report" directly from your insurance company before surrendering. Most major insurers can provide this and it shows exactly what your basis is (total premiums paid minus any dividends received in cash). When I called my insurance company, they were able to email me this statement within 24 hours, and it made the tax calculation crystal clear. The statement showed my basis as $4,200 and surrender value as $4,850, so I knew I'd only owe taxes on $650. Also, if you're planning to surrender soon, consider the timing. If you surrender early in the year, you'll have more time to plan for the tax liability. If you surrender late in December, you might want to wait until January if the tax hit would push you into a higher bracket for the current year.