Schedule K-1

What Does Schedule K-1 Mean?

A Schedule K-1 is a tax form that allows an income earner to pass the liability for their income to another party, typically a beneficiary of the earned income.

Insuranceopedia Explains Schedule K-1

The primary purpose of a K-1 form is to transfer tax liability to another party. It is often used to manage assets for beneficiaries of a trust, as it allows them to bypass taxes on those assets. Because the form shifts who actually pays tax on the income, it tends to come up alongside other planning questions families face, such as how to set beneficiary designations on a life insurance policy.

A trust may file a Schedule K-1 tax form for income earned by the trust but distributed to a beneficiary. Whether the recipient owes tax on that distribution depends on the type of income and how the trust is structured, which is a separate question from whether life insurance proceeds are taxable.