SNiPS Tax Tip 

June 9, 2012 

Death Benefits 

If an individual dies while they are an employee, the employer may make a payment of up to $10,000 to the surviving spouse or children and the monies received are not taxable. The death benefit payment is not restricted to $10,000. If the payment exceeds this threshold, the excess is taxable. If there is no surviving spouse, the exemption can be shared with the recipients of the payment. 

Many larger companies do not utilize death benefits as they struggle with developing a “fair” policy to handle all situations. For example, it is difficult to pay a death benefit to one employee’s family and not another. However, this should not be a factor for smaller companies who can make these rare payments when the company feels it is appropriate. 

Death benefits are one of the most effective payments and can be paid at a time of extreme stress for a family.