How to Claim Life Insurance Survivor Benefits for a Minor on a 2017 Tax Return

Who Can Claim the Benefit?

The beneficiary of a life insurance payout who is a minor (under 18) can receive the proceeds, but the tax treatment depends on who files the return and how the money is used.

Tax Treatment of Survivor Benefits in 2017

For 2017, life insurance death benefits are generally not taxable. However, if the beneficiary is a minor and the benefit is used for non‑educational expenses, the IRS requires the parent or guardian to report the income on the child's tax return using Form 1040‑EZ or 1040‑A. If the benefit is used for qualified education expenses, it may be excluded from taxable income under the Qualified Tuition Program (QTP) rules.

Step‑by‑Step Filing Instructions

1. Determine the Beneficiary's Filing Status

If the minor has no other income and the benefit is the only source, they may file as a dependent on a parent's return. In that case, the benefit is not reported on the child's return.

2. If Filing Separately

Use Form 1040‑EZ or 1040‑A and enter the amount on Line 1. Attach a statement explaining the nature of the income and that it is a life insurance death benefit.

3. Claiming a Qualified Education Exclusion

Use Form 8863 to claim the exclusion if the benefit covered qualified tuition and related expenses for the minor. The exclusion is reported on Line 21 of the child's return.

4. Recordkeeping

Keep the policy death certificate, payout statement, and any receipts for educational expenses. These documents are required if the IRS questions the exclusion.

Common Pitfalls to Avoid

• Failing to attach the statement explaining the source of income.
• Assuming the benefit is automatically tax‑free for a minor.
• Using the money for non‑qualified expenses and then claiming an exclusion.

Key Dates and Deadlines