Question

Donald was killed in an accident while he was on the job in 2016. Darlene, Donaldâs wife, received several payments as a result of Donaldâs death. What is Darleneâs gross income from the items listed below?

a. Donaldâs employer paid Darlene an amount equal to Donaldâs three monthsâ salary ($60,000), which is what the employer does for all widows and widowers of deceased employees.

b. Donald had $20,000 in accrued salary that was paid to Darlene.

c. Donaldâs employer had provided Donald with group term life insurance of $480,000 (twice his annual salary), which was payable to his widow in a lump sum. Premiums on this policy totaling $12,500 had been included in Donaldâs gross income under § 79.

d. Donald had purchased a life insurance policy (premiums totaled $250,000) that paid $600,000 in the event of accidental death. The proceeds were payable to Darlene, who elected to receive installment payments as an annuity of $30,000 each year for a 25-year period. She received her first installment this year.

Answer 1

a. Donald's employer paid Darlene an amount equal to Donald's three months' salary ($60,000), which is what the employer does for all widows and widowers of deceased employees.

• The $60,000 are included in the widow's gross income.

b. Donald had $20,000 in accrued salary that was paid to Darlene.

• The $20,000 are included in the widow's gross income.

c. Donald's employer had provided Donald with group term life insurance of $480,000 (twice his annual salary), which was payable to his widow in a lump sum. Premiums on this policy totaling $12,500 had been included in Donald's gross income under § 79.

• $0 included in widow's gross income.

Benefits from life insurance policies are not taxed.

d. Donald had purchased a life insurance policy (premiums totaled $250,000) that paid $600,000 in the event of accidental death. The proceeds were payable to Darlene, who elected to receive installment payments as an annuity of $30,000 each year for a 25-year period. She received her first installment this year.

• Taxable amount = $30,000 - $24,000 = $6,000

Only amount not classified as capital recovery is taxed. Capital recovery per year = ($600,000 / $750,000) x $30,000 = $24,000