We frequently receive questions regarding the H.E.L.P.S. (Healthcare Enhancement for Local Public Safety Officers) benefit and how retirees can take advantage of the tax savings it allows. Nearly all retirees take advantage of this benefit by simply declaring the deduction on their 1040 assuming that the premium is being paid by an eligible retirement plan (see instructions below).
If you choose to take a distribution from your 457(b) Deferred Compensation Plan, these funds must be remitted and made payable to an Insurance Company, or your prior employer if you are covered by a self-insured health plan. However, when a municipality is self-insured, this process is not always available. In such cases, you can still take advantage of the tax deduction directly on your tax return.
For retirees that have chosen to obtain coverage from a source other than their previous employer and are paying the premium with after-tax money, they can remit a form to their 457(b) vendor to have a $3,000 withdrawal occur tax-free. Again, this money must be sent to the insurance carrier. This money cannot be remitted directly to you or the participant.
Insurance Premiums for Retired Public Safety Officer:
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.