Tax Facts

653 / How are the commissions on policies purchased by an insurance agent taxed?

Commissions on a life insurance policy purchased by the agent, on the agent’s own life or on the life of another, are taxable to the agent as ordinary income. Such commissions are considered compensation, not a reduction in the cost of the underlying policy.1 This rule applies to brokers as well as to other life insurance salesmen.2

1. Ostheimer v. U.S., 264 F.2d 789 (3rd Cir. 1959); Rev. Rul. 55-273, 1955-1 CB 221.

2. Commissioner v. Minzer, 279 F.2d 338 (5th Cir. 1960); Bailey v. Commissioner, 41 TC 663 (1964); Mensik v. Commissioner, 37 TC 703 (1962), aff’d, 328 F.2d 147 (7th Cir. 1964).

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.