In an ever-globalizing world, U.S. tax payers are looking abroad for their insurance needs. According to UHY partner Christopher Byrne, while taxpayers may find certain benefits from policies issued by a foreign insurer that they might not find domestically, many find themselves with a rude awakening when they are hit with a surprise surcharge from the IRS. Pursuant to Internal Revenue Code § 4371(2), a one percent excise tax is charged on the premium paid on a policy for life, sickness, or accident insurance or an annuity contract.
Internal Revenue Code § 4372 defines a foreign insurer or reinsurer as a nonresident alien individual, foreign partnership or foreign corporation. This definition excludes foreign governments, municipalities or other entities exercising taxing power. The definition for a “policy of life, sickness, or accident insurance or annuity contract” is broad and means any policy or other instrument called by whatever name whereby a contract of insurance or an annuity contract is made, continued, or renewed with respect to the life or hazards to the person of a citizen or resident of the United States.
To comply with the code, a taxpayer must file Form 720 Quarterly Federal Excise Tax Return and pay a one percent tax on the total premium paid. Tax is due on the last day of the month following the end of the quarter in which the premium is paid.
Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club