Retired Public Safety Officer Pension Exclusion IRS PUB 575(2018)
Insurance Premiums for Retired
Public Safety Officers
If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude
from income distributions made from your eligible retirement plan that are used to pay the premiums for accident
or health insurance or long-term care insurance. The premiums can be for coverage for you, your spouse, or dependents. The distribution must be made directly from the
plan to the insurance provider. You can exclude from income the smaller of the amount of the insurance premiums or $3,000. You can only make this election for
amounts that would otherwise be included in your income.
The amount excluded from your income can't be used to
claim a medical expense deduction.
An eligible retirement plan is a governmental plan that
is:
• a qualified trust,
• a section 403(a) plan,
• a section 403(b) annuity, or
• a section 457(b) plan.
If you make this election, reduce the otherwise taxable
amount of your pension or annuity by the amount excluded. The amount shown in box 2a of Form 1099-R doesn't
reflect this exclusion. Report your total distributions on
Form 1040, line 4a; or Form 1040NR, line 17a. Report the
taxable amount on Form 1040, line 4b; or Form 1040NR,
line 17b. Enter “PSO” next to the appropriate line on which
you report the taxable amount.
If you are retired on disability and reporting your disability pension on Form 1040, line 1; or Form 1040NR, line 8,
include only the taxable amount on that line and enter
“PSO” and the amount excluded on the dotted line next to
the applicable line.
INTERVIEW ENTRIES:
- Income Menu
- IRA/Pension Distributions (1099-R, RRB-1099-R, 8930)
- Select New and fill out the Payer's Information
- Enter the Gross Distribution in Box 1 as it is shown on the 1099-R
- Do not subtract the amount of any Qualified Retired Public Safety Officer Distribution from the Gross Distribution or adjust the Taxable Amount in Box 2a by the smaller of the amount of premiums or $3,000. Instead, enter the smaller of the amount of the premiums or $3,000 in Box j on the 1099R entry menu and the correct taxable amount will be carried to appropriate line (either Line 7 or 16) on the Form 1040.
- Enter the Distribution Code in Box 7. If the code is a 3 (Disability), you will be given the option to report the income on Form 1040, Line 7. All other distribution codes will carry to Form 1040, Line 16.
- The abbreviation PSO will be displayed in the left margin of the 1040 as well as the premium amount that was entered as a Qualified Retired Public Safety Officer Distribution.
Former IAFF, Retired!
https://www.op-f.org/Files/How_to_report_the_new_$3000_gross_income_exclusion.pdf