Police Officer Retired and Insurance Exclusion

[S T]

For those that are informed on Police/Public Safety Officer - from Pub 575 - have you used this exclusion on returns or filed amended returns - if so, what do I need to look for on the 1099R or other sources for amended returns to reflect apossible exclusion and refund

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 cannot 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 does not reflect this exclusion. Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; 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 line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line.

Thanks

Sandy

[Gene V]

Pso

Sandy,
I have a client that qualified for the PSO, in 2012 and 2013. I didn't know about the exclusion until he told me about the deduction ( he got this from his pension plan administrator). I call her and verified the information.
Nothing on the 1099 that shows this--I think the deposit advice or check stub of the December pension benefit payment should have the year-to-date deduction for insurance premiums.

Gene

[Roland Slugg]

What do I need to look for on the 1099R or other sources for amended returns to reflect a possible exclusion and refund?

Sandy, I don't believe the information you need will be shown on the 1099R form. Ask your client to show you his monthly statements that detail the earnings and deductions. The best one to see would be the last one he received for the calendar year. That statement should show if, and if so, how much, was deducted for health or LT care insurance premiums. Be careful. Some payers may deduct the premium but NOT include it in the taxable distribution total on form 1099R, so be sure to compare the year's last statement to the 1099R.

The maximum excludable amount is $3,000 or the amount actually paid, if less.

[thomtax]

I have one individual that qualifies for this. He gets a seperate letter from the plan advising him of the amount. In Drake there is a seperate page for entering this and it puts the PSO on the form.

[taxea]

I qualify for this deduction. My medical etc is paid directly to insurer and deducted from my gross 1099. I just automatically take it each year. I have never received a letter of explanation

[FEDUKE404]

Clarification needed on qualifying payments

Interesting.

My "medical etc" has been deducted from my retired employee (gross) monthly benefits for several years. I am speaking of my "regular" government retirement which is reported on a Form 1099-R.

I also have an (untapped, so far) 401k out there, and of course any withdrawals there, to include RMDs, will be reported on a separate Form 1099-R.

So far as I know, I don't think there is any way the 401k plan can "directly pay" the monthly medical insurance premiums which cover myself and a family member.

Information I currently have on hand cites "The qualified health insurance premiums must be paid directly to the insurer." Stated differently, does a mere reduction (for insurance cost payments to BC/BS) in net benefits received qualify as a "direct payment" ??

Is (has there been?) some mechanism in place, with these facts, that I could conceivably be deducting up to $3k/year via the "PSO" entry on line 17b of Form 1040 ?

Thanks for any input.

FE

[Burke]

It is my understanding that regularly retired government employees do not count; nor any other retirees other than these Police/Public Safety Officers. Somehow they got written into the statute.

[FEDUKE404]

PSO relevance

It is my understanding that regularly retired government employees do not count; nor any other retirees other than these Police/Public Safety Officers. Somehow they got written into the statute.

PSO does apply in this case.

Biggest hurdle I see is true definition of "directly paid to the insurer."

Smaller hurdle is retirement plans that actually qualify in the first place.

FE

[S T]

As always, thanks for the information and good discussion
I have requested the final year end Retirement Pay Stubs to determine if there is a possible tax relief and amendment

Sandy

[taxea]

Interesting.

My "medical etc" has been deducted from my retired employee (gross) monthly benefits for several years. I am speaking of my "regular" government retirement which is reported on a Form 1099-R.

I also have an (untapped, so far) 401k out there, and of course any withdrawals there, to include RMDs, will be reported on a separate Form 1099-R.

So far as I know, I don't think there is any way the 401k plan can "directly pay" the monthly medical insurance premiums which cover myself and a family member.

Information I currently have on hand cites "The qualified health insurance premiums must be paid directly to the insurer." Stated differently, does a mere reduction (for insurance cost payments to BC/BS) in net benefits received qualify as a "direct payment" ??

Is (has there been?) some mechanism in place, with these facts, that I could conceivably be deducting up to $3k/year via the "PSO" entry on line 17b of Form 1040 ?

Thanks for any input.

FE

You have to have been a first responder, not just a govt employee to qualify. The payments are deducted from gross retirement and paid directly to the insurer. In other words, the payments are technically made by you, not your former employer.

[FEDUKE404]

Broad group qualifies as "Retired Public Safety Officers"

You have to have been a first responder, not just a govt employee to qualify. The payments are deducted from gross retirement and paid directly to the insurer. In other words, the payments are technically made by you, not your former employer.

The inclusion is far broader than merely a "first responder" as already shown by S T above and in this excerpt from IRS Publication 575.

"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 cannot be used to claim a medical expense deduction. "

Where things get confusing is that it appears, at least to me, that you need o have an annuity situation of some type that "pays" the premiums. And then things get more complicated when dealing with what essentially amounts to, in layman's terms, "deferred compensation plans."

I have clients/friends who meet the PSO requirements. They all have (government) retirement proceeds that "pay" the premiums (maybe?) and many of them also have a 401(k) lurking in the shadows. If they do not itemize deductions nor have enough medical expenses to break the AGI floor, then this issue becomes very relevant to potential tax savings for them.

This is all a bit confusing. Memories of what the rules really were (now are!) re SEHI issues.

FE

[taxea]

law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew are what is commonly known as first responders.

[FEDUKE404]

LEOs or only first responders ?

law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew are what is commonly known as first responders.

If that's the case, I guess the IRS should retitle the section covering the deduction to "Insurance Premiums for Retired First Responders" from the current "Insurance Premiums for Retired Public Safety Officers."

Or, stated differently, I've know numerous law enforcement officers and chaplains whose day-to-day primary duties were **NOT** as first responders. Are you saying that is an essential element and therefore such people would automatically be excluded from claiming the exemption??

FE

[New York Enrolled Agent]

If that's the case, I guess the IRS should retitle the section covering the deduction to "Insurance Premiums for Retired First Responders" from the current "Insurance Premiums for Retired Public Safety Officers."

This is what the law says is the definition:

(9) “public safety officer” means—
(A) an individual serving a public agency in an official capacity, with or without compensation, as a law enforcement officer, as a firefighter, or as a chaplain;

(B) an employee of the Federal Emergency Management Agency who is performing official duties of the Agency in an area, if those official duties—
(i) are related to a major disaster or emergency that has been, or is later, declared to exist with respect to the area under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.); and

(ii) are determined by the Administrator of the Federal Emergency Management Agency to be hazardous duties;

(C) an employee of a State, local, or tribal emergency management or civil defense agency who is performing official duties in cooperation with the Federal Emergency Management Agency in an area, if those official duties—
(i) are related to a major disaster or emergency that has been, or is later, declared to exist with respect to the area under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.); and

(ii) are determined by the head of the agency to be hazardous duties; or

(D) a member of a rescue squad or ambulance crew who, as authorized or licensed by law and by the applicable agency or entity, is engaging in rescue activity or in the provision of emergency medical services.

[Burke]

Where things get confusing is that it appears, at least to me, that you need o have an annuity situation of some type that "pays" the premiums. And then things get more complicated when dealing with what essentially amounts to, in layman's terms, "deferred compensation plans."
FE

I agree. The rules do state the pension/annuity does have to pay the premiums directly to the insurance company. Why this is a requirement, I have no idea. What difference does it make? I have never considered deferred compensation plans to be a "retirement plan." Def Comp is treated as wages. Earned while still employed (payment postponed to a later date), the FICA/MC taxes are paid at the time of deferral. A retirement plan is classified as a pension paid after retirement, which is not subject to FICA. Also, I have never seen health insurance premiums paid from a deferred comp distribution. Do you know of such an instance?