Tax resource center

Insurance & annuities

Why would Northwestern Mutual send a 1099 form?

The Internal Review Code (IRC) requires Northwestern Mutual to report certain distributions and interest earned from life insurance and annuity contracts.

The IRS requires that we report this information on a 1099 form to both the taxpayer and the IRS. Some common examples of taxable income Northwestern Mutual is required to report include:

Form 1099-INT:

If you earned at least $10 in interest, we will issue a 1099-INT on interest earned from a billing or payment account, dividends that are left to accumulate, death proceeds after the date of death (prior to the proceeds being paid), access fund accounts, and interest income plans.

Form 1099-R:

If you received a full and partial distribution or certain dividend payments from a life insurance or annuity, we would issue a 1099-R. Also, some tax-free exchanges are also reportable on a 1099-R for informational purposes.

Should a contract dividend be reported on a 1099-DIV?

No. Form 1099-DIV is generally used for dividends paid on corporate stock. Taxable dividend distributions from life insurance and annuity contracts are reported on a 1099-R form.

Is there a tax penalty for early distributions if you're disabled?

While you may qualify for the disability exception, the definition of disability can vary. You must meet the IRS definition of disability to qualify. Because Northwestern Mutual cannot make the determination of whether you qualify under the IRS definition, you received a 1099-R form with a distribution code of "1" in box 7 indicating that you were subject to a penalty tax because at the time of distribution you were younger than age 59 ½.

Consult your tax advisor regarding claiming the exception on your federal tax return.

How should the taxable gain on 1099-R form be reported?

Generally, the gain reported on the full or partial distribution of a life insurance or annuity contract is considered ordinary income.

Why would the IRS send a B-Notice?

The IRS will issue this letter when an SSN or TIN is not provided to us in the required manner or does not match IRS records for tax forms Northwestern Mutual filed the previous year. To learn more about this, read IRS Publication 1281, "Backup Withholding for Missing and Incorrect Name/TIN(s)".

What is a modified endowment contract (MEC)?

A permanent life insurance policy is classified as a MEC if the cumulative premium paid exceeds the premium limit established by the IRC. A MEC policy is taxed less favorably than a non-MEC policy. Consult your financial professional or tax advisor to learn more.

Is there a tax on withdrawals from a life insurance policy?

For any part of a transaction to be taxable, the contract must first have a gain. A life insurance contract has a gain when the cash value exceeds the cost basis (generally premiums paid less adjustments) of the contract.

Typically, when you take a distribution from a life insurance contract the IRC allows you to recover the cost basis before any gain is withdrawn. But there are some exceptions. Distributions (including loans) from life insurance contracts classified as MECs are taxed gain-out first and may be subject to an additional 10% penalty tax. Also, distributions from a contract within the first 15 contract years may be subject to gain-out-first taxation even if the policy is not a MEC, depending on the size of the withdrawal and other factors.

Why do I see multiple images of some of my 1099s?

If you have multiple life and/or annuity accounts that generate a 1099, Northwestern Mutual may have consolidated it into one tax document if certain criteria are met. For more information about this, see details on page 3 of your 1099.