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What is the public safety officer health insurance deduction?

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February 29, 2024

The health insurance deduction for public safety officers is a specific tax benefit that allows eligible retired public safety officers to exclude from their taxable income certain amounts paid for health insurance premiums. This provision is particularly relevant for those who have retired due to age or disability and are receiving distributions from eligible retirement plans. Here's a detailed look at how this deduction works:

### Eligibility Criteria

1. Public Safety Officer: An individual must be serving or have served a public agency in an official capacity, with or without compensation, as a law enforcement officer, firefighter, chaplain, or as a member of a rescue squad or ambulance crew.

2. Retirement Status: The exclusion is available only to public safety officers who have separated from service after attaining normal retirement age or due to disability. It is not available to surviving spouses or dependents after the public safety officer dies.

3. Qualified Health Insurance Premiums: The premiums must be for accident or health insurance or long-term care insurance for the retired public safety officer, their spouse, or dependents.

### Financial Limits and Requirements

- Exclusion Limit: The exclusion is limited to $3,000 per year. This means that up to $3,000 of the distributions used to pay for health insurance premiums can be excluded from taxable income.

- Direct Payment Requirement (Repealed): Prior to December 30, 2022, the distribution had to be paid directly to the insurance provider to qualify for the exclusion. However, the SECURE 2.0 Act repealed this direct payment requirement effective December 29, 2022.

- Impact on Other Deductions: Any amount excluded from income under this provision cannot be deducted as a medical expense for itemized deductions. Additionally, it isn’t includible as health insurance for the self-employed health insurance deduction.

### Reporting on Tax Returns

- Form 1040 Instructions: For those eligible, the amount excluded from taxable income should be properly reported on their tax returns. The total distributions should be reported on line 5a of Form 1040, and the taxable amount (after subtracting the excludable amount) should be reported on line 5b. The notation “PSO” should be entered next to line 5b to indicate the public safety officer exclusion.

### Example

Assume a retired public safety officer receives a gross distribution of $50,000 from their retirement plan, of which $45,000 is the taxable amount. If the retirement plan administrator made a direct distribution of $2,500 to cover health insurance premiums, the entries on Form 1040 would reflect the total distributions and the taxable amount after excluding the $2,500, with “PSO” noted next to the relevant line.

### Conclusion

The health insurance deduction for public safety officers provides a valuable tax benefit, allowing eligible retirees to exclude a portion of their retirement plan distributions used for health insurance premiums from their taxable income. It's important for eligible retirees to understand the requirements and ensure proper reporting on their tax returns to take advantage of this exclusion.

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