Police Officer Retired and Insurance Exclusion

[S T]

Update on Taxpayer

As in my original post, I was not quite sure what I should be asking of the taxpayer to see if this exclusion was possible.

Thanks to several replies to my original post, I was able to provide the taxpayer with information that would be needed to substantiate the exclusion.

Turns out, this taxpayer does not qualify, there was no health/medical insurance premiums deducted from his retirement and paid through the Adminstrator of the Retirement Benefits - Taxpayer paid for all of his own insurance outside of the retirement system.

Good information though, as I have another Police Retiree, that might qualify so will forward information to them for further research.

Sandy

[taxea]

[QUOTE=FEDUKE404;176080]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[/QUOT

You all are making this more difficult than it needs to be. Google "federal definition of First Responder". Employees included in this definition can take the credit if it is deducted from their gross retirement distribution and paid directly from the issuer of their retirement distribution to their health plan provider.
As noted before....all govt employees are not considered first responders.

[TAXNJ]

federal Pension Protection Act of 2006 (PPA)

As you noted, I've never encountered any instance where a deferred comp plan can "pay" medical insurance premiums. My guess is such is few and far between. . .and possibly non-existent.

The largest flag I could conceivably raise in this issue involves persons who fall within the qualifications previously cited (thank you!!), mostly within the "9A" category. Said persons receive retirement benefits and those gross monthly payments are further reduced by the cost of medical insurance for the retiree (and sometimes spouse/dependents). The jury is out as to whether that would meet the "directly paid" requirement to employ the PSO adjustment.

I do think this topic is worthy of pursuit. In the best-case scenario, a qualifying taxpayer, who neither has sufficient medical deductions nor itemizes, could be looking at a $3k reduction in taxable income.

Gosh. . .we thought the balderdash over the SEHI rules was a mess. . . .

FE

Have you tried referencing federal Pension Protection Act of 2006 (PPA)

[FEDUKE404]

Still no deision on "directly paid" requirement

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." D/C is treated as wages earned while still employed (postponed to a later date), where the FICA/MC taxes are paid at the time of deferral, and the other 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?

As you noted, I've never encountered any instance where a deferred comp plan can "pay" medical insurance premiums. My guess is such is few and far between. . .and possibly non-existent.

The largest flag I could conceivably raise in this issue involves persons who fall within the qualifications previously cited (thank you!!), mostly within the "9A" category. Said persons receive retirement benefits and those gross monthly payments are further reduced by the cost of medical insurance for the retiree (and sometimes spouse/dependents). The jury is out as to whether that would meet the "directly paid" requirement to employ the PSO adjustment.

I do think this topic is worthy of pursuit. In the best-case scenario, a qualifying taxpayer, who neither has sufficient medical deductions nor itemizes, could be looking at a $3k reduction in taxable income.

Gosh. . .we thought the balderdash over the SEHI rules was a mess. . . .

FE

[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?

[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.

[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

[taxea]

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

[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]

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.

[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

[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

[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]

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

[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