Life insurance payouts are generally not considered as taxable income. The Internal Revenue Service (IRS) does not typically tax the death benefit received from a life insurance policy. This means that in most cases, the money received from a life insurance policy is not subject to federal income tax. However, there are some exceptions and specific situations where a portion of the life insurance payout may be taxable. For example, if the policyholder received interest income on the death benefit, that interest may be subject to taxation. Additionally, if the policy was transferred for valuable consideration, part of the death benefit may be taxable. It's important to note that state laws may also impact the taxation of life insurance proceeds, so it's advisable to consult with a tax professional or financial advisor for personalized guidance. Overall, while life insurance money is generally not considered as income for tax purposes, it's essential to be aware of potential exceptions and seek professional advice when necessary.