Can i reduce my taxable pension by cost of the medical insurance being deducted from my paychecks?

[u00rzo1]

my end of year pension "earnings statement" clearly shows gross earnings, federal taxes and insurance premiums. my net earnings are gross - taxes - insurance, and all numbers add up. However my 1099-r form shows same gross earnings in box 1 and 2a, federal taxes in box 4 and nothing (no insurance premium) in box 5. How can i get tax credit for cost of my insurance. As i see it my insurance is not paid with pre-tax money; cost of the insurance is deducted from the gross distribution.

[MargaretL]

Yes, you can reduce your taxable pension by your medical insurance premiums, but not directly. You must enter form 1099-R into TurboTax exactly as it appears and please do not change any values.  However, you can then go to Deductions & Credits section and enter your medical premiums as your medical expenses.

To enter form 1099-R:

1. Federal Taxes
2. Wages and Income
3. Scroll down to Retirement Plans and Social Security
   
4. Select IRA, 401(k), Pension Plans (1099-R)

Then, please visit medical expenses section:

1. Federal Taxes
2. Deductions and Credits
3. Scroll down to Medical, select Medical Expenses, enter the total amount for all medical insurance premiums that you paid 

[cammy67]

IRS publication say medical insurance amount can be entered on line 4c and change the taxable amount on line

4d and write POS on the line next to it. TT only lets you put it in itemized deductions and therefore you cannot take the reduction in taxable pension disbursement.  You lose the credit if you take the standard deduction. I think TT is wrong on this,. How about an answer TT?

[dbsjps]

If I enter my insurance premiums this way, I lose the deduction because I don't have enough itemized deductions to exceed the standard deduction. When I was employed, my premiums reduced my taxable income. Why are premiums witheld from a pension any different?

[AbrahamT]

Why don't you just reduce the taxable amount for the amount of insurance premiums that you paid. Keep a copy of the insurance premiums for backup so that if it ever comes up as an issue in the future, it could be explained. 

[dbsjps]

I was thinking about doing that. It makes sense but does the IRS allow it? 

[dbsjps]

I read that the IRS matches 1099s against submitted 1040 forms. if the taxable income on my 1099 doesn't match my 1040 will that trigger an audit? The retirement board told me we don't get the tax benefit we did when I was employed and that I would need to add the insurance premiums to itemized deductions. Since we are only eligible for the standard deduction, I would lose the tax benefit for the insurance premiums. Is this correct? Is there any clear guidance for this in IRS publications?

[Cynthiad66]

Yes the IRS matches the information filed to the information that is received directly from employers, pensions etc.  It could possible trigger an audit.

Your retirement board informed you correctly that you can get a deduction for health insurance premiums as an itemized deduction.

You can usually deduct the premiums for short-term health insurance as a medical expense. Short-term health insurance premiums are paid out-of-pocket using pre-tax dollars, so if you take the itemized deduction and your total annual medical expenses are greater than 7.5% of your AGI, you can claim the deduction.

Well, if you take the standard deduction you do not receive that deduction specifically because the standard deduction is larger than your total itemized deductions.

The amounts listed on the form 1099R is for information purposes in preparing your tax return.

In general, §106(a) provides that gross income of an employee does not include employer-provided coverage under an accident or health plan. Under §106(a), an employee may exclude premiums for accident or health insurance coverage that are paid by an employer.

IRS PUB:  Medical and Dental

@dbsjps

[dbsjps]

Thank you Cynthid66. But now I'm confused again. What document are you referencing with section 106? Your last sentence makes me think I can reduce my taxable income by the amount of the premiums withheld from my pension to pay for employer sponsored health insurance. Does it matter if the employee is active or retired (but under age 65)?

[Vanessa A]

Section 106 is not a document, it is the tax code dealing with employee health contributions.

No, you cannot reduce your taxable income by the amounts of the premiums withheld from your pension to pay for your employer sponsored health insurance.  If you were still working and receiving a W2 and a weekly paycheck your box 1 wages would be reduced by the amount you contributed to your insurance premiums.

Since you are retired and no longer receive a W2, the only way to get a deduction for your insurance premiums is to itemize your return.  Since you say you do not qualify for the Itemized Deduction, I am assuming this is because your mortgage interest, state and local taxes, medical insurance and expenses in excess of 7.5% of your AGI and charitable donations do no add up to more than $25,900 (if you are married filing a joint return).  If this is the case, you are correct when you say, you will not get any type of tax benefits from paying your health insurance premiums. 

[SusanHL]

So, I have done this exactly, and the deduction is not showing or making a difference in the amount of taxes owed. 

If I change the "taxable amount on the 1099-R (I know I can't do this) just to see the difference in the 'taxable amount,' the amount of tax owed is reduced. 

[SusanHL]

PS: above comment, I am asking about the deductions specifically for Public Safety Officers' Pension paid health insurance.

[Cynthiad66]

Per our Expert SharonD007 - IRS Pub 575states that “The distribution must be made directly from the plan to the insurance provider”.  The federal Pension Protection Act of 2006 contains a provision permitting eligible, retired public safety officers to exclude up to $3,000 for qualified health insurance premiums paid by them from their gross taxable income each year, as long as the premiums are deducted from their retirement benefit. 

Based on the information that you provided, the premium that is withheld from your retirement distribution and forwarded to your ex-employer who pays for your healthcare qualifies as an exclusion up to $3,000.  

Please see the instructions below to ensure that the eligible amount withheld will be excluded from your taxable income:

1. Launch TurboTax and type in Form 1099-R by the magnify glass in the search panel
2. Select Jump to 1099-R
3. Add your 1099-R or edit the 1099-R that had your health insurance deducted
4. Go through the questions and make sure to answer Yes to “this money came from employment as a Public Safety Officer (PSO)”
5. Enter Yes to “money was taken out to pay for health insurance”
6. Enter the amount of your pension that was paid directly to the plan administrator for health insurance.

@usanHL

[MCollett1]

Would this include the amounts taken for dental and vision insurance?

[DaveF1006]

 Yes as long as these premiums were paid by the pension administrator and within the $3000 threshold.