Survivor income benefits

[hdtaxman]

Morning..I have a client that passed away.  He worked for META..long story short, his wife is receiving a one time death benefit of approx. $50K..If I recall, the death benefit is typically not taxable when it is a result of a life insurance policy.

The second item though..I think I know the answer but wanted to confirm if anyone familiar with such..

There is a survivor income benefit offered by META, payable through Prudential: , payable for up to 10 years, equal to 1/2 of the monthly earnings. Assume this is taxable as it is, for all intent and purposes, based on an estimate of taxable wages.  However, what is confusing is the statement (in red) that Prudential provided ( the insurer of the benefit for META):

• In general, the benefit amount is distributed equally over the payment period. The portion of these payments that is considered a return of principal is not included in your gross income. However, interest received on the amount retained is considered taxable income.
• The amount of each payment that is excludable from taxable income is equal to the Death Benefit divided by the number of payments. The remainder of each payment is generally taxable income. Interest income will be reported on IRS Form 1099. If you receive fewer than 12 full monthly payments during a calendar year, the amount of taxable income reported should be reduced accordingly.
• My thinking is that the full amount of $9,500/month is taxable, similar to wages.  We can specify the withholding amounts for fed and state.  Since the death benefit of $50k is being paid separately, I do not see how it applies to the survivor benefit payments.  Or is this saying that the $50k gets divided by the 120 months and that amount of each $9,500 payment is nontaxable? Not seeing that logic since the death benefit payout is typically already nontaxable (other than some interest possibly).  My overall conclusion is that the 120 payments are taxable on the 1099 and we have withholding to that effect on an annual basis..
• Am I missing something here?

Thanks in advance..

•  

[IRonMaN]

Could be just a standard one size fits all letter from Prudential or it could be that he paid into the plan during his working days.

[taxes96786]

I would obtain a copy of the original document on this benefit. Generally, survivor benefits are not taxable, however, any interest earned on the account is. Your client should have received a 1099 that shows the taxable amount.

[Skylane]

Is the 9500/mo what they’re talking about in red? If so, it says return of principal, which should not taxable. Prudential should be providing reporting forms for the taxable amounts. Agree that if the 50k is benefit from group life policy, it is not taxable