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Retired Public Safety Officer Insurance deduction

I am a retired Public Safety Officer. 

I pay 10% of my health insurance premium. That amount is deducted from my monthly pension check. The pension coordinator gives it to my (previous) employer and the employer pays for the insurance.

The publication says the pension coordinator must pay it directly to the insurance provider. Does this still count?

Can I deduct the 10%?

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Accepted Solutions
SharonD007
Employee Tax Expert

Retired Public Safety Officer Insurance deduction

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.  

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12 Replies
AmyC
Employee Tax Expert

Retired Public Safety Officer Insurance deduction

It depends. A tax free distribution does not qualify while a taxable one does qualify as a medical expense.

 

Publication 502, Medical and Dental Expenses states:

Retired public safety officers. If you are a retired public safety officer, don't include as medical expenses any health or long-term care insurance premiums that you elected to have paid with tax-free distributions from a retirement plan. This applies only to distributions that would otherwise be included in income.

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Retired Public Safety Officer Insurance deduction

So, you believe that to be the deciding factor? If the payments are pre-tax they (obviously) would not be deductible, but if they are post tax I can deduct them?

Retired Public Safety Officer Insurance deduction

I'm Sorry, we may be discussing two different things. I am referring to the Retired Public Safety Officer Insurance deduction covered in Pub 575, not the medical expenses from Pub 502. Pub 575 says :

eligible retired public safety officer ... 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...

 

SharonD007
Employee Tax Expert

Retired Public Safety Officer Insurance deduction

If you are asking "can you deduct the medical payments that were deducted from your monthly retirement pay and paid directly to your insurance carrier for your health insurance on your Schedule A as a medical expense", the answer is no but you can exclude that amount up to $3,000 from your taxable income. 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.

If you are using TurboTax Desktop, you can select Forms at the top of the page, scroll down on the left and highlight 1040. Line 5a will show the total amount of your pension (there will also be “PSO” beside it). Line 5b will show the taxable amount. Up to $3000 will be subtracted from your taxable amount (which is excluded from your taxable income) for the health insurance premiums that the plan administrator paid directly to your health insurance carrier.

If you are using TurboTax online, you must pay for TurboTax before you can view the forms.  Select Tax Tools from the menu on the left, With the Tax Tools menu open, you can then:

  • Preview your entire return: Select Print Center and then Print, save, or preview this year's return 
  • View only your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu.

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Retired Public Safety Officer Insurance deduction

Thank you, I do know how to claim the deduction. I was only curious if my particular situation allowed me to take the deduction, listed:

I only pay 10% while my ex-employer pays 90%

The publication says it must be paid directly to the insurance provider - my funds are given to my ex-employer to co-pay the insurance. 

SharonD007
Employee Tax Expert

Retired Public Safety Officer Insurance deduction

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.  

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ohv698
New Member

Retired Public Safety Officer Insurance deduction

CALPERS pays my medical insurance premium. Can I deduct (up to $3k) LTC, dental and vision insurance premiums that are paid directly out of my pension? I am retired PSO.

MinhT1
Employee Tax Expert

Retired Public Safety Officer Insurance deduction

Yes, you can elect to exclude from income up to $3,000 of premiums for accident or health insurance or long-term care insurance made from a eligible retirement plan.

 

Please note that the amount excluded from income cannot be used to claim a medical expense deduction.

 

Please read this IRS document for more information.

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Retired Public Safety Officer Insurance deduction

I am a retired FF and pay all of my Health Insurance Premiums. How can I self-designate and claim/deduct the $3,000 from my taxable income? 

BillM223
Employee Tax Expert

Retired Public Safety Officer Insurance deduction

First, you must have taxable income from a pension. No, the pension administrator no longer has to pay the premiums, but the $3,000 exclusion is counted against taxable pension income only.

 

So when you enter the 1099-R to add the pension income to your return, in the screens right after you enter the 1099-R data, there will be a screen that asks if you had been a public safety officer. You answer YES and then you will be asked how much did you pay towards the insurance premium (max of $3k). 

 

This exclusion will appear in the difference between line 5a and 5b. In addition, the letters PSO will appear on line 5a.

 

If you do not have any taxable pension income, then you cannot get the $3k health insurance premium deduction for public safety officers.

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7grands4us
Returning Member

Retired Public Safety Officer Insurance deduction

The only Publication 575 I could find on the IRS site was for 2022 returns not 2023. The law has since changed. If you go to IRS.gov website and look under section FORMS & INSTRUCTIONS, you can find "IRS 1040 (and 1040-SR) Instructions for tax year 2023".  There you will find the new changes. 

Look on page 28 under "Insurance Premiums for Retired Public Safety Officers".  At the bottom of the first column, it states: "...or the distribution can be made to you to pay the provider of the accident or health plan......You can exclude from income the lesser of the amount of insurance premiums you paid or $3,000."

The second column tells you how to enter it on your 1040 on line 5b.  

On TurboTax, go to forms and select your 1099R for your pension. This will show your 1099R as you entered it but, it will also have additional information and workspace. Under the workspace heading INSURANCE, you should find a question about how much your pension distributed to your healthcare. The answer is probably zero.

The second question is about how much your pension distributed for your HSA. Again, the answer is probably zero.

The third question is about how much you paid for qualified health insurance premiums. The answer is the actual amount you paid or $3,000, whichever is less. When you enter this amount, Turbo Tax will lower your taxable income by $3,000 or the amount you actually paid, whichever is less. You do not have to change the figures on your actual 1099-R.  I hope this helps.

FYI- If you go to Virgina Congresswoman Abigail Spanberger's website and look for the January 2, 2023 news release, you can read the recent history for the change in the original 2006 HELPS law.  Virginia Democratic Representative Abigal Spanberger and Ohio Republican Representative Steve Chabot introduced the bipartisan legislation in March 2022. The bill was signed into law by President Biden in late December 2022 to take effect for the 2023 Tax returns.

 

BillM223
Employee Tax Expert

Retired Public Safety Officer Insurance deduction

Thank you. The only issue that we have had with the LEO $3,000 exclusion from a pension is that at the start of tax season, TurboTax (Online and Desktop) still said that the payment had to go directly from the pension administrator to the health insurance company. This was incorrect, although the underlying code was correct and handled the $3,000 correctly.

 

NOTE: you had to have taxable pension income for the $3,000 to be deducted. If no taxable pension income, then the $3,000 is ignored (as it should be), because the wording of the Act is that the $3,000 is an exclusion but only from pension income, not the taxpayer's general income.

 

Because of the Secure Act 2.0, the wording on the screen in the 1099-R interview was changed. Hopefully, this closes the issue.

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