Not all taxpayers can report life insurance to the IRS. Find out what the exceptions are and what the deduction is.
Share the post “IRS Life Insurance: Who Can Claim It and How”
You Life insurance is included in IRS expenses🇧🇷 Doubt persists, not least because the rule has exceptions. There are cases in which you can deduct part of the insurance premiums, while in the rest the amount is only included in the General Family Expenses category.
There are several reasons for taking out life insurance, the most common being related to home loans. Even though it is not mandatory, it turns out to be a common practice, giving guarantees to both parties in case something happens. That is, the bank guarantees that the property is paid for and the customer or his family does not lose the right to their housing.
However, life insurance expenses do not count towards IRS deductions, except in a few cases. Let’s find out which ones.
Who can deduct life insurance on the IRS?
Workers in fast-wearing occupations and people with disabilities can file life insurance expenses with the IRS. The same happens with subscribers of Retirement Savings Plans that work like life insurance.
However, in all these cases there are requirements and limits for life insurance to be included in the IRS and for the taxpayer to benefit from deductions in relation to the premiums he has paid.
Workers with fast-wearing professions
These workers can deduct from the IRS not only all life insurance premiums, but also sickness and personal accident premiums. However, it is essential that they guarantee the risks of death, disability or old-age retirement after the age of 55.
In order to be deductible from the IRS, these life insurance policies cannot guarantee payment, namely by redemption or advance payment, of any outstanding capital during the first five years.
The deduction limit is equivalent to 5 x IAS (Social Support Index). In 2022 the value of the IAS is €443.20, so the maximum deduction is €2,216. In 2023, the IAS increases to €478.70, so the deduction rises to €2,393.5.
The fast-wearing professions are, for this purpose, athletes, miners and fishermen🇧🇷 That is, other activities, even if they are considered to wear out quickly and benefit, for example, from access to early retirement, cannot take advantage of these tax benefits, which are limited to the three professions mentioned.
people with disabilities
With regard to people with disabilities (with a disability equal to or greater than 60%), the life insurance deduction in the IRS covers 25% of all premiums or contributions to mutual associations. The deduction is limited 15% of the IRS collection🇧🇷
In order to be considered by the IRS, insurance must exclusively cover the risks of death, disability or old-age retirement.
In the case of old-age retirement insurance, as is the case with PPR, the limit for this deduction is €65 for unmarried people and €130 for married individuals who are not legally separated.
PPR (Retirement Savings Plan)
O Article 21 of the Tax Benefits Statute provides for IRS deductions for Retirement Savings Plans (PPR). In this case, the deduction applies to 20% of the premium paid.
There are, however, limits that have to do with the age of the taxpayer. Thus, the maximum deductions for an unmarried taxable person or for each of the spouses are:
- Under 35 years old: you can deduct up to 400 euros if you apply 2000 euros in the PPR;
- Between 35 and 50 years old: 350 euros is the maximum deduction ceiling, if 1750 euros apply;
- From 50 years old: you can deduct up to 300 euros, if you apply 1500 euros.
HOW DO I DECLARE LIFE INSURANCE WITH THE IRS?
Life insurance premiums must be declared in Table 7 of Appendix H of your personal income tax return.
Insurance expenses now appear in the E-invoice, so it is important to verify that the values presented are correct.
In the case of PPR, the entity that manages them communicates to the Tax Authority the amount that the taxpayer invested in the previous year, so these already appear in the annex. So, you just have to check if they are correct.
Bear in mind that, when choosing to have tax benefits with your PPR, you will suffer penalties if you want to redeem early (although exceptions are provided for in the law). Therefore, you should consider which option is the most advantageous.
Article originally published in April 2019. Last updated in December 2022.
