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).

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