In 2006, the Healthcare Enhancement for Local Public Safety (HELPS) Retirees Act allowed retired public safety officers to withdraw $3,000 tax free from their pension plan to pay health or long-term care insurance premiums. This required the pension plans to pay the $3,000 directly to the insurer.
Shortly before January 3, 2023, the law was changed - removing the requirement that pension fund distributions must go directly to the insurer to be eligible for tax-free status.
While preparing my 2023 taxes on TurboTax, it appears that the program has not recognized this change, and still maintains the requirement that the premiums be paid through the pension plan. Is TurboTax going to update based on the new law, and if not, what is the best work around?
You enter the Form 1099-R as you normally would. There are follow-up screens with one of which will ask if you were a Public Safety Officer, answer Yes. Continuing on there will be another screen asking how you paid for health insurance. Enter the amount you paid, not to exceed $3,000.
On your Form 1040, on Line 5a will be the written PSO. On Line 5b will be the taxable amount of your pension income less the amount you entered for health insurance.
Thanks - it sounds like this may be the best workaround.
Unfortunately, in order to do this, the user has to lie when answering the following TurboTax question, "Did the pension administrator take out money for NAME's pension to pay for health insurance?" Only by answering "Yes, money was taken out to pay for health insurance" can you obtain the proper deduction. This was based on the old law requiring the pension provider to direct the funds to the insurance company. Under the new law, the pension distribution goes to the former employee who then pays for the premiums from their personal account funds. This still qualifies for the deduction. Hopefully TurboTax will rewrite their questions to be consistent with current with federal tax law.
Same issue. Would be nice to have the software updated to reflect the new law.
"Lying to TurboTax is not the same as lying to the IRS". It's called getting TurboTax to give you the results you want. 😉
We're working on it; in the meantime, just read this sentence as I said in the other post: "Did you or the pension administrator..."
@BillM223 Thank goodness that is true. If it were a crime to lie in the TurboTax "step-by-step" system in order to get the proper and legal data onto the actual submitted forms, I would have been convicted years ago. It is just more of an on-going annoyance.
For my fellow public safety brothers and sisters who are unaware of this change that may affect your 2023 deductions, it is outlined in the SECURE Act 2.0, part of the Consolidated Appropriations Act of 2023 (P.L. 117-328). If your spouse is also a qualified public safety retiree, they may also qualify for the up to $3,000 deduction, for a total family deduction up to $6,000.
I’m also retired LEO I paid well over $3,000 for medical insurance. When filing where did you enter the information? On the box that says paid by administrator? Thanks
So did you just say the $3,000 was paid by the administrator to receive the credit?
Yes - that is what I did when entering the information from my 1099R from my pension administrator.
I also have been struggling to get clarification on this exemption for retired public safety officers. Today I researched this issue and found that the bill passed by congress in March of 2022 called the
HELPS Retirees Improvement Act of 2022 ( H.R. 7203) "eliminates the requirement that insurance premiums must be paid directly to the provider of the accident or health plan or long-term care insurance contract as a condition of eligibility for the tax exclusion."
TurboTax needs updating to clarify this important point.
rjm76
You enter the Form 1099-R as you normally would. There are follow-up screens with one of which will ask if you were a Public Safety Officer, answer Yes. Continuing on there will be another screen asking how you paid for health insurance. Enter the amount you paid, not to exceed $3,000.
On your Form 1040, on Line 5a will be the written PSO. On Line 5b will be the taxable amount of your pension income less the amount you entered for health insurance.