Life Insurance Tax Rules in Ohio

Ohio's Tax Treatment of Life Insurance Proceeds

In Ohio, life insurance death benefits are generally exempt from state income tax. The state follows the federal rule that death proceeds paid to a beneficiary are not taxable as income. However, if the policy includes an annuity or if the beneficiary receives the proceeds as a lump sum that includes accrued interest, that interest portion is subject to Ohio income tax.

Premiums and Tax Deductions

Premiums paid for life insurance policies are not deductible on Ohio state income tax returns. This aligns with federal policy, which treats life insurance premiums as a personal expense rather than a business deduction. Business owners who use life insurance as a key person or buy‑out tool cannot claim a tax deduction for the premiums on their Ohio tax filings.

Estate and Inheritance Tax Considerations

Ohio imposes a state estate tax on estates valued above the exemption threshold ($4,000,000 for 2024). Life insurance proceeds that are part of the estate—i.e., if the policy is owned by the deceased—are subject to estate tax. Beneficiaries receiving the proceeds directly as the named beneficiary avoid estate tax, but the estate must still report the policy's value if it is owned by the decedent.

Reporting Requirements for Beneficiaries

Beneficiaries receiving taxable interest from a life insurance annuity must report it on their Ohio income tax return. The insurer sends a Form 1099‑INT to the beneficiary and the state if the interest exceeds $10. The form details the taxable portion that must be included in the state return. Failure to report can result in penalties.

Tax Planning Tips for Ohio Residents

• Keep the policy owned by the insured to avoid estate tax.
• Use irrevocable life insurance trusts (ILITs) to remove the policy from the estate.
• Consider annuity riders only if the tax‑exempt portion is maximized.
• Consult a tax professional to align policy ownership with estate goals.