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.
That is not correct, I read it also raised the med exemption to $6,000.
It still is incorrect at it was raised to $6,000 2/2023.
According to how it is worded it does not say household or spouse. It just says increased from $3,000 to $6,000, so I would assume that is a increase for one retired public safety officer
I read its now $6,000 per retired officer pension plan and can be paid directlyt to insurer instead of deducted from pension first.
As I noted above last year, the software is working fine; it's just the wording on the Turbotax screen that needed to be updated.
The $6,000 exclusion was in the Wally Bunker HELPS Retirees Improvement Act; however, I do not think that act passed in that form. This means that the maximum amount of health insurance premium is still $3,000.
Please see the instructions for box 2a on page 11 of the 1099-R instructions.
Where did you see $6,000?
This still confuses me. If used up my (RHSP) retiree health savings plan monies, and am now paying my health insurance premiums from my monthly pension check myself , am I still eligible for this deduction?
Yes, you can still qualify for the deduction. The 1099-R deduction can be included if the premiums are made directly to the plan to the provider or from the plan to you to pay the provider. If your 1099-R was depleted you can only deduct what was taken from your plan up to $3,000. For example, if you retirement distribution was only $2,000 you can claim the $2,000 for the exclusion. Here is what TurboTax provides, "The qualified health insurance premiums can be made directly from the plan to the provider of the accident or health plan or long-term care insurance contract, or the distribution can be made to you to pay the provider of the accident or health plan or long-term care insurance contract. The insurance premiums can be used for you, your spouse, or your dependents. The total exclusion cannot exceed $3,000. The premium amount is not included in income and is not subject to the early distribution penalty."
Thank you, so to clarify if I pay my health insurance out of my pension and not from a 401,457 or RHSP, I am still able to claim the deduction? Example my monthly pension is $8500 and I pay $1400 a month for health insurance out of my pension. Am I qualified for the deduction?
brianc0610
You are qualified for up to a $3000 deduction for health insurance for retirees - note that you actually have to pay $3,000 (total for the year, which nearly anyone does).
The only restriction is that you have to have more than $3,000 in retirement income - you may think, of course, but sure enough last year we had a taxpayer who wanted to take the deduction despite having no retirement income.
And to repeat, despite the wording that was in TurboTax (and may still be there for all I know - the $3,000 no longer has to be paid directly by the pension administrator, you can pay it yourself.
Thanks Bill I always appreciate your help. I think the part that was confusing me is the part I read below.
Thanks again!
Qualified governmental defined benefit, IRC Section 403(a), Section 403(b), and Section 457(b) plans are covered by HELPS.