HELPS Tax Break for Police and Fire Retiree Medical Insurance Payments

Please be sure your retired members are aware that they may reduce their taxable earnings by up to $3,000 for medical insurance premiums paid during a calendar year.  This is allowable under the Healthcare Enhancement for Local Public Safety Retirees Act, or the “HELPS” Retiree Act.

Previously, there was a requirement that the premium had to be deducted from the retiree’s pension check in order to qualify for HELPS credit.  That is no longer the case following the adoption of the federal Secure 2.0 retirement law.  Premiums paid directly by a retiree for health, accident or long-term care insurance qualify for the credit.

The $3,000 reduction does not appear on the annual 1099R form that is sent out by the pension fund.  The retiree must claim the reduction on his or her personal 1040 tax form on Line 5B or similar adjustment.  Instructions on claiming the reduction are included in IRS Publication 575.  In the 2023 version of the publication, the instructions appear on page 6 (with an update on page 2 stating that direct payment from the pension fund is no longer required).   The pages and wording may be different when the 2024 version of Publication 575 is released.  The relevant sections of Publication 575 are appended to this bulletin.

As this is not a simple matter, pensioners may want to consult with their tax preparer to properly claim the reduction.  If your pension benefits are administered by a pension administration company, you might obtain additional information by contacting that company.

Married couples where both the parties are retired police/fire/EMS may take a reduction in income of up to $6,000.  Please note that the tax break is not available to surviving spouses.

Let’s do what we can to ensure that our retired members can take advantage of this tax break for retiree medical insurance.

 

Publication 575 – 2023 – Page 6

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 who is retired because of disability or because you reached normal retirement age), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for coverage by an accident or health plan or a long-term care insurance contract. The premiums can be for coverage for you, your spouse, or dependents.

The distribution must be from the plan maintained by the employer from which you retired as a public safety officer. The distribution can be made directly from the plan to the provider of the accident or health plan or long-term care insurance contract, or the distribution can be made to you to pay to the provider of the accident or health plan or long-term care insurance contract.

You can exclude from income the smaller of the amount of the insurance premiums or $3,000. You can make this election only for amounts that would otherwise be included in your income. The amount excluded from your income can't be used to claim a medical expense deduction.

An eligible retirement plan is a governmental plan that is a:

  • Qualified trust,
  • Section 403(a) plan,
  • Section 403(b) annuity, or
  • 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 doesn't reflect this exclusion. Report your total distributions on Form 1040, 1040-SR, or 1040-NR, line 5a. Report the taxable amount on Form 1040, 1040-SR, or 1040-NR, line 5b. 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 Form 1040, 1040-SR, or 1040-NR, line 1h, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line.

 

From Page 2, Publication 575 (2023)

Reminders

The direct payment requirement for certain distributions for payment of health or long-term care insurance repealed. Distributions from governmental plans to an eligible retired public safety officer made after December 29, 2022, for health and long-term care insurance can be excluded from that employee’s gross income.

These distributions are excluded from gross income whether the premiums are paid directly to the provider of the accident or health plan or qualified long-term care insurance contract by deduction from a distribution from the eligible retirement plan or if the distributions are made to the employee.

The amount which may be excluded from gross income for the tax year can’t exceed the lesser of $3,000 or the amount paid for the insurance