P.L. 109-280, The Pension Protection Act of 2006. Section 845 allows retired public safety officers (that’s us) to pay our health insurance premiums with our pretax income. Most federal retirees are not eligible for this benefit. The maximum amount is $3,000 per year. That will reduce our federal income taxes by about $750. If your state has an income tax and it “conforms” with the federal tax code, additional savings may be received.
The insurance premiums eligible include our FEHBP premiums and Long Term Care premiums. The catch is that it has to be paid directly from your retirement account. Premiums that you pay yourself are not eligible.
The following are excerpts from that publication:
Retired public safety officers. For distributions after 2006, an eligible retired public safety officer can elect to exclude from income distributions of up to $3,000 made directly from the CSRS or FERS to the provider of accident, health, or long-term care insurance. See Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II for more information.
Distributions Used To Pay Insurance Premiums for 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 after 2006 from an 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.
For this purpose, an eligible retirement plan is a governmental plan that is:
The CSRS and FERS are considered eligible retirement plans.
How To Report Benefits
If you received annuity benefits that are not fully taxable, report the total received for the year on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Also, include on that line the total of any other pension plan payments (even if fully taxable, such as those from the TSP) that you received during the year in addition to the annuity. Report the taxable amount of these total benefits on line 16b (Form 1040), line 12b (Form 1040A), or line 17b (Form 1040NR). If you use Form 4972, Tax on Lump-Sum Distributions, however, to report the tax on any amount, do not include that amount on lines 16a and 16b; lines 12a and 12b; or lines 17a or 17b; follow the Form 4972 instructions.
If you received only fully taxable payments from your retirement, the TSP, or other pension plan, report on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b, the total received for the year (except for any amount reported on Form 4972); no entry is required on line 16a (Form 1040), line 12a (Form 1040A), or line 17a (Form 1040NR).
Note: This information was provided to members on page 13 of the July issue of NARPI NEWS and in NARPI-Net Msg 150 on July 9th.