61 / Are amounts received as living proceeds of life insurance and endowment contracts subject to withholding?
Yes.
A payee, however, generally may elect not to have anything withheld. Only the amount that it is reasonable to believe is includable in income is subject to withholding. Amounts are to be withheld from periodic payments at the same rate as wages. Payments are periodic, even if they are variable, if they are payable over a period of more than a year. If payments are not periodic, 10 percent of the includable amount is withheld. Payments to a beneficiary of a deceased payee are subject to withholding under the same rules.1 An election out of withholding will be ineffective, generally, if a payee does not furnish his or her taxpayer identification number (TIN, usually the payee’s Social Security number) to the payor, or furnishes an incorrect TIN to the payor and the payor is so notified by the IRS.2
1. IRC § 3405; Temp. Treas. Reg. § 35.3405-1T (A-9, A-10, A-12, A-17, F-19 through 24).
2. IRC § 3405(e)(12).