Police Officer Retired and Insurance Exclusion

[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

[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)

[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.

[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

[FEDUKE404]

Fact or interpretation ? ?

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

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.

With all due respect, the information shown in Publication 575 does not state "first responder" but instead references "Retired Public Safety Officers."

I urge you to read section 9A as previously provided by New York Enrolled Agent. It would appear that your definition of a "Public Safety Officer" is far more restrictive than the actual rules appear to allow.

Example to consider: John Smith is a sworn law enforcement officer for the State of X. His primary, daily duties are (were) those of a plain-clothes criminal investigator.

Publication 575 would seem to indicate John Smith would (potentially) qualify for the income exclusion from certain retirement income.

The interpretation by taxea would seem to indicate that John Smith would automatically not qualify for the income exclusion solely because he is not a "first responder."

Which is correct? ?

FE

[TAXNJ]

Again

With all due respect, the information shown in Publication 575 does not state "first responder" but instead references "Retired Public Safety Officers."

I urge you to read section 9A as previously provided by New York Enrolled Agent. It would appear that your definition of a "Public Safety Officer" is far more restrictive than the actual rules appear to allow.

Example to consider: John Smith is a sworn law enforcement officer for the State of X. His primary, daily duties are (were) those of a plain-clothes criminal investigator.

Publication 575 would seem to indicate John Smith would (potentially) qualify for the income exclusion from certain retirement income.

The interpretation by taxea would seem to indicate that John Smith would automatically not qualify for the income exclusion solely because he is not a "first responder."

Which is correct? ?

FE

Have you referenced the 2006 PPA? It has Q & A and if you read it your questions should be answered.


This material has been prepared to help you understand the 2006 Pension Protection Act (PPA) and how it impacts deferred compensation plans, plan sponsors and participants. The guidance provided in IRS Notice 2007-7 is also covered in the following Q&A. I. EGTRRA Permanency 811: The provisions of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) were made permanent in the PPA, including the Saver’s Credit Because of the PPA, plan sponsors and participants no longer need to worry about retirement plan

Who is an eligible “public safety officer”? The definition of a public safety employee may be defined in state laws. Participants should check with their primary retirement plan system for this determination. However, an eligible public safety OFFICER is defined in federal laws2 for purposes of the $3,000 federal income tax exclusion as individuals serving in a public agency in an official capacity, including, • Professional firefighters • Individuals involved in crime and juvenile delinquency control or reduction, or enforcement of the criminal laws (including juvenile delinquency), including, but not limited to police, corrections, probation, parole, and judicial officers • Officially recognized or designated public employee members of a rescue squad or ambulance crew • Officially recognized or designated members of a legally organized volunteer fire department • Officially recognized or designated chaplains of volunteer fire depa

[TAXNJ]

More

Reference as noted in prior post.

II. Tax Exclusion for Public Safety Officers 845: The PPA provides a new federal tax exclusion to retired public safety officers for up to $3,000 a year for qualified health and long-term care premiums The PPA provides a new benefit for retired public safety officers. Beginning in 2007, they may elect to exclude up to a maximum of $3,000 per year from their gross income for federal income tax purposes for retirement plan distributions that are used to pay qualified health and long-term care insurance premiums. ? ? ? ? What types of retirement benefits are eligible for this exclusion? Amounts that are distributed from governmental qualified defined benefit or defined contribution plans (including 401(k) plans), 403(b) plans and governmental 457(b) plans. The $3,000 exclusion is the total annual amount available from all eligible governmental retirement plans. Do plans have to be fully insured to be eligible? Yes. The accident or health plan must be an accident or health insurance plan providing insurance issued by an insurance company regulated by a State including managed care organizations that are treated as issuing insurance. Therefore, if the insurance company which the participant is requesting payment to is self insured, the participant will not be eligible. Under what circumstance are eligible retired public safety officers eligible for this exclusion? This favorable tax treatment is available only when the retired officer elects to have the amount subtracted from his or her distribution from an eligible government plan to pay qualified health insurance premiums. This is an optional provision. An eligible government plan is not required to offer this election. Who is an eligible “public safety officer”? The definition of a public safety employee may be defined in state laws. Participants should check with their primary retirement plan system for this determination. However, an eligible public safety OFFICER is defined in federal laws2 for purposes of the $3,000 federal income tax exclusion as individuals serving in a public agency in an official capacity, including, • Professional firefighters • Individuals involved in crime and juvenile delinquency control or reduction, or enforcement of the criminal laws (including juvenile delinquency), including, but not limited to police, corrections, probation, parole, and judicial officers • Officially recognized or designated public employee members of a rescue squad or ambulance crew • Officially recognized or designated members of a legally organized volunteer fire department • Officially recognized or designated chaplains of volunteer fire departments, fire departments, and police departments 2 Section 1204(8)(A) of the Omnibus Crime and Safe Streets Act of 1986 (42 U.S.C. 3796b(9)(A))

[FEDUKE404]

To TAXNJ

Thanks for straightening me out.

Apparently I (erroneously) put too much faith in the verbiage of Publication 575.

Doubt if I will ever encounter any qualifying clients.

I'm still intrigued by what scenario might exist for medical insurance premiums "to be directly paid" by a 401k or similar plan. But I don't plan to lose any sleep over the matter, either.

Thanks again for taking the time to respond.

FE

[TAXNJ]

Sleep

Thanks for straightening me out.

Apparently I (erroneously) put too much faith in the verbiage of Publication 575.

Doubt if I will ever encounter any qualifying clients.

I'm still intrigued by what scenario might exist for medical insurance premiums "to be directly paid" by a 401k or similar plan. But I don't plan to lose any sleep over the matter, either.

Thanks again for taking the time to respond.

FE

Thanks. Sleep is worth more. All my posts cite "NRM-4218AO.3 1 3/22/2007"
and provides a great Q & A. You may find a reliable source what your looking for when you wake up.

God luck

[taxea]

With all due respect, the information shown in Publication 575 does not state "first responder" but instead references "Retired Public Safety Officers."

I urge you to read section 9A as previously provided by New York Enrolled Agent. It would appear that your definition of a "Public Safety Officer" is far more restrictive than the actual rules appear to allow.

Example to consider: John Smith is a sworn law enforcement officer for the State of X. His primary, daily duties are (were) those of a plain-clothes criminal investigator.

Publication 575 would seem to indicate John Smith would (potentially) qualify for the income exclusion from certain retirement income.

The interpretation by taxea would seem to indicate that John Smith would automatically not qualify for the income exclusion solely because he is not a "first responder."


Which is correct? ?

FE

he qualifies because he is a sworn law enforcement officer...the assignment by his department is plain clothes detective. Just because the first-responder rises in the ranks of his/her department does not mean they no longer qualify for this credit.
Some departments are "public safety departments" rather than "police departments" because they have chosen to combine, in some way, police, fire and emt services.

[TAXNJ]

Good explanation

he qualifies because he is a sworn law enforcement officer...the assignment by his department is plain clothes detective. Just because the first-responder rises in the ranks of his/her department does not mean they no longer qualify for this credit.
Some departments are "public safety departments" rather than "police departments" because they have chosen to combine, in some way, police, fire and emt services.

Good explanation Can you share with FEDUKE your source for more references to read.

[FEDUKE404]

Getting around the descriptors

Good explanation Can you share with FEDUKE your source for more references to read.

The example I was using would involve numerous sworn law enforcement officers with the State of NC. These would include NC State Highway Patrol troopers, State Bureau of Investigation agents, Alcohol Law Enforcement officers, and others. They carry a badge, a firearm, and have state-wide arrest powers / jurisdiction. [For purposes of this discussion I am not mentioning county/city employees, to include police officers, sheriff department members, and firemen/EMTs as obviously their job descriptions and work assignments may be more specific.]

None of them ever had, or ever will have, EMT duties as part of their original job duties (except under unusual circumstantial situations). For them, there is no progression from or to any EMT status.

Upon retirement, any basic medical insurance premiums for the individuals cited will be paid by the State of NC. If the retiree wishes greater medical insurance coverage, for him/herself or for his/her family, those premiums would be settled each month by the needed funds coming from the monthly retirement benefits. All sworn law enforcement officers in NC are eligible to participate in a separate 401k Deferred Compensation Plan operated by a large-name investment organization. So far as I know, NONE of the above individuals can ever have anything resembling medical insurance coverage "paid" through or by said 401k plan.

I think the IRS Publication 575 is poorly written re definition of "public safety officer," not unlike similar "problems" with the English language when the SEHI deduction versus "in the name of the business" and payment of qualifying Medicare B premiums arose.

For now, I will just file this matter away in the same Rhett Butler category where my vast knowledge of Schedule R also resides.

FE

[taxea]

all the positions you posted fall under public safety first responders. They are sworn law enforcement personnel

[TAXNJ]

Ok

all the positions you posted fall under public safety first responders. They are sworn law enforcement personnel

Thought that was the original post issue. OK so where is the cite you are posting for the "sworn law enforcement personnel" for reference.

Thanks

[New York Enrolled Agent]

TAXNJ writes: OK so where is your cite ...

Speaking of cites you told FE to check out the 2006 PPA for Q&A.

§845 of the PPA act added §402(l) to the Internal Revenue Code. There are no Q&A in either of those sections. There may be Q&A in other documents but you sent FE in the wrong direction.

I'll repeat what I previously posted in its entirety. The definition of public safety officer is found in 42 USC 3796b(9).

The definition of public safety officer is different than the definition of public safety employee which was used in §828 of 2006 PPA to give a special exception for purposes of IRC §72(t). It appears taxea is more likely referring to PSEs as opposed to PSOs.