Hi,
Currently received monthly income protection payments, insurance company has acknowledge that I will no longer be returning to work and have offered a lump sum payout. What are the tax implications, how will this affect me.
Thanks
Hi @HAS1,
Income protection payments will be taxable at your marginal rates, whether paid as a lump sum or as an income-stream.
This means if you receive a lump sum payment for a payout which would usually be an income-stream payment across multiple years, you will end up paying more tax, as your taxable income would be in higher brackets for that one year, versus at lower brackets across multiple years.
Remember that insurer's don't withhold from payments made direct to the policy holder, so this also means you'll end up paying the tax after lodging the return at the end of the year. You should consider this when examining your options, too.
You may wish to seek financial advice to consider your best option.
You can read about insurance payments on our website.
Hi @HAS1,
Income protection payments will be taxable at your marginal rates, whether paid as a lump sum or as an income-stream.
This means if you receive a lump sum payment for a payout which would usually be an income-stream payment across multiple years, you will end up paying more tax, as your taxable income would be in higher brackets for that one year, versus at lower brackets across multiple years.
Remember that insurer's don't withhold from payments made direct to the policy holder, so this also means you'll end up paying the tax after lodging the return at the end of the year. You should consider this when examining your options, too.
You may wish to seek financial advice to consider your best option.
You can read about insurance payments on our website.
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