Life insurance payouts are generally not subject to income tax. The money received from a life insurance policy is typically considered a death benefit and is therefore not taxable as income. This means that beneficiaries of a life insurance policy do not have to report the payout as income on their tax returns.
However, there are some exceptions to this general rule. If the policyholder had chosen to receive the death benefit in installments rather than as a lump sum, any interest earned on the installments may be subject to income tax. Additionally, if the policyholder had sold their life insurance policy to a third party, the proceeds from the sale may be subject to capital gains tax.
It's important to note that while life insurance payouts are generally not taxable, they may still be subject to estate tax if the total value of the policyholder's estate exceeds the estate tax exemption limit set by the government.
Please consult with a tax professional or financial advisor for specific guidance on your individual situation, as tax laws can vary and change over time.