1099-INT and 1099-R: What Are They? Why Are They Sent?

Each year approximately 20% of MTL policyholders received 1099 forms. Copies of these forms, which report income generated by an insurance policy, are not only provided to the taxpayer of the designated distribution reflected on the form, but the Internal Revenue Service and the appropriate state, city or local tax department.

Forms 1099-INT and 1099-R
There are two types of 1099s, 1099-INT and 1099-R. While both forms report income that is generated by an insurance policy, Form 1099-INT is used to report interest credited on certain policy proceeds. Form 1099-R is used to report designated distributions of a policy's internal earnings (gain) that were previously untaxed.

Events that Can Generate a 1099-INT
Here are some scenarios that could cause a Form 1099-INT to be generated:

• Interest earned on dividend accumulations.
• Interest earned on premiums paid in advance or to a deposit fund.
• Interest earned on insurance death claim proceeds from the date of death to the date of settlement.
• Interest earned on maturities from the maturity date to the date of settlement.
• Interest earned on refund of premium to avoid a Modified Endowment Contract (MEC).

Events that Can Generate a 1099-R
Here are a few scenarios that may cause a Form 1099-R to be generated:

• Any surrender of a policy that has a gain.
• Lapse of a loaned policy that has a gain.
• A partial surrender under a policy that has a gain, including surrenders attributable to a reduction in face amount.
• Matured policies that have incurred a taxable gain.
• Any distribution, including loans, loan interest added, or dividends surrendered in cash from a Modified Endowment Contract (MEC) that has gain, or when a collateral assignment takes effect on a MEC that has a gain.
• A 1035 exchange from one insurer to another. Although a 1035 is generally not taxed, the IRS requires the original insurer to report the amounts transferred to the new insurance company.
• The death benefit paid to the beneficiary of an annuity contract. If the annuity was a qualified annuity such as an IRA, the total death benefit is taxable to the beneficiary. If the annuity was a non-qualified annuity, the gain (death benefit minus contributions received) is taxable to the beneficiary.

Avoiding 1099s
One way you usually can avoid receiving a 1099 and paying taxes on interest is to elect to have all non-guaranteed policy dividends used to buy paid-up additions. By using non-guaranteed dividends to buy paid-up additional insurance, you also will increase the cash value and death benefit of your policy(ies). If your policy is a Modified Endowment Contract (MEC), whether you access money through withdrawals or loans, you will receive a 1099 on any gain above the cost basis. Therefore, you need to consult with your MTL Insurance Advisor to determine if a MEC is right for you. (Click here to learn more about MECs.) And last, if your policy isn't a MEC, and you need money, take a loan against your policy rather than a partial surrender.

For tax questions, please consult your personal tax advisor.* For questions about your MTL policy(ies), please contact your MTL Insurance Advisor or the home office.

*MTL does not provide tax or legal advice. MTL clients must consult with a tax or legal expert of their choice.

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