Income Averaging

What Does Income Averaging Mean?

Income averaging is a method of calculating a person’s income by spreading their earnings over a multiple-year period.

Earnings from insurance policies, such as life insurance, could be included as part of a person’s income. These earnings would be added to the individual’s yearly total and factored into the income averaging calculation.

Insuranceopedia Explains Income Averaging

Government regulation from 1986 eliminated the practice of income averaging for tax purposes. As a result, Americans must now calculate their income each year and use that figure when filing taxes.

Earnings from life insurance and other insurance benefits can still be factored into tax calculations, but only those acquired during the given tax year. Many taxpayers choose to hire an accountant to help calculate their taxable income.