2023 SECURES ACT 2.0 LEO deduction for $3000.00

[BillM223]

Page 24 of the 1040 Instructions:

This for entries on line 1h on the 1040.

"• Disability pensions shown on Form 1099-R if you haven’t reached the minimum retirement age set by your employer. But see Insurance Premiums for Retired Public Safety Officers in the instructions for lines 5a and 5b. Disability pensions received after you reach minimum retirement age and other payments shown on Form 1099-R (other than payments from an IRA*) are reported on lines 5a and 5b. Payments from an IRA are reported on lines 4a and 4b."

So I don't know if I asked you, have you reached the minimum retirement age set by your employer? In other words, is your disability to be reported on 1h as Other Income or on lines 5a and 5b and pension distributions? The answer would certainly affect my test.

[bigdaddy1177]

Thanks again, Bill. I retired on disability at age 53 and police minimum retirement age for Ohio is 48.

[BillM223]

OK, so since you retired on disability after the minimum retirement age for your plan, then your pension should be reported on lines 5a and 5b (see instructions just above).

Of course, since your pension isn't taxable, line 5a has $40,000 (or whatever) and line 5b has 0. And since you can't take $3,000 from 0, you don't see the $3,000 anywhere. The health insurance premium is against taxable pension (line 5a), and since you don't have any, the $3,000 does not appear anywhere.

I don't know if this was an unintended consequence, but that is the way the Tax Code (I.R.C. § 402(l)(5)(A)(i) In General ) reads.

[mjnewt1]

Hello Bill, i looked through the images you displayed but my health insurance premiums were not taken out by my pension administrator. I paid my premiums directly to my insurance from my checking account.  It appears TurboTax is not addressing the change mentioned below?

Section 328 of the SECURE Act 2.0, now Division T of Public Law 117-328, modified the direct payment requirement under HELPS by making it optional and created an alternative to the direct payment method, namely allowing the retirement plan to make the distribution to the retired public safety officer. The retiree could then make the premium payment to the provider and remain eligible for the tax exclusion. This change is effective for distributions made after the date of enactment of the SECURE Act 2.0, which was December 29, 2022.
 
The SECURE Act 2.0 also provided that, in cases where the distribution is made to the retiree, the retiree must include with their tax return an attestation that the amount sought to be excluded from the pension distribution does not exceed the amount paid by the employee for qualified health insurance premiums for the taxable year.

I am confused as it doesn't seem correct that i indicate the funds were taken out by the administrator when i received all the pension funds and paid my insurance premiums myself???

[BillM223]

Let me put it this way: 

1. The exclusion is taken out of your pension distribution, whether you paid it or the administrator paid it, that was the change in the Secure Act 2.0).

2. However, in your case, you don't have a pension distribution, because it's $0, being non-taxable.

3. So there is no place to put the $3,000 because it's supposed to be removed from your taxable pension distribution, which you don't have.

Notice the following:

"Section 328 of the SECURE Act 2.0, now Division T of Public Law 117-328, modified the direct payment requirement under HELPS by making it optional and created an alternative to the direct payment method, namely allowing the retirement plan to make the distribution to the retired public safety officer. The retiree could then make the premium payment to the provider and remain eligible for the tax exclusion. This change is effective for distributions made after the date of enactment of the SECURE Act 2.0, which was December 29, 2022."

This exclusion had to be taken from a taxable distribution, but you just didn't have one. I believe that if you had had a second pension distribution that in fact was taxable, that this would have worked for you.

Like I said above, this looks like an untended consequence, in that you can take the $3k exclusion...but only if your pension taxable was actually taxable - and yours isn't.

In other words, you had a pension distribution of $40,000 which was tax-free, so a taxable distribution of $0. You can't make that $40,000 any less taxable, i.e., you can't subtract the $3,000 from zero.

I am thinking that you think that the $3k exclusion can show up someplace else, but it cannot because that is not how the law is written. It must show up as part of line 5b on the 1040....which, in your case, is already $0.

P.S. I haven't done so, but thank you for your service as a police officer.

[mjnewt1]

OK, I believe i simply was not understanding the terminology. It appears (Assuming i know understand this correctly) that a distrubution is not the same as my monthly "pension" correct?

[BillM223]

Yes, your pension is paid to you in one or more distributions. But the issue is that the $3k is excluded from your PENSION. The problem is that your pension - for tax purposes - is $0. So there is nothing to exclude the $3k from.

[mjnewt1]

My pension is fully taxed...  over $5000 paid in 2023? With deductions taken out of each monthly payment to me...

[BillM223]

What is your question?

@mjnewt1

[mjnewt1]

You say "The problem is that your pension - for tax purposes - is $0. So there is nothing to exclude the $3k from." Yet over $5000 was taken out and sent to the IRS for taxes by my retirement plan. Then how is it $0? 

[BillM223]

I said, "The problem is that your pension - for tax purposes - is $0." It is, because in his case, the taxable value of his $40k pension is $0, because of his disability. For TAX PURPOSES, not in real value.

Taking $5k out in withholding has nothing to do with the taxable amount of the pension distribution. Yes, usually you do withholding when the distribution contains taxable income, but that is not a strict requirement.

As far as his tax return is concerned, that distribution was for $0, even if in cash he received $40k.

[bigdaddy1177]

Bill,

Thank you for the kind words and assistance here. 

Best wishes...

[brianc0610]

Hi Bill,

I have read all the responses for this post and appreciate the time you put into it. I am having the same problem, yet I have taxable income. 

I completed the section but because I pay my health care provider myself from my monthly pension, there is no amount in box 5 to enter, so I am unable to take the $3000 deduction. It seems the system has not been updated for the change in law which no longer requires the payments to be made by the fund administrator. 

Any help is greatly appreciated.

[BillM223]

"from my monthly pension, there is no amount in box 5 to enter"

Your gross pension amount should appear on line 5a. Your taxable pension amount should appear on line 5b.

Do you have a taxable pension amount?

[brianc0610]

Hello Bill,

Thank you for your response. I have my gross distribution in box 1 and taxable amount in 2a. I have nothing in 5.

Brian