The Federal Pension Protection Act of 2006 was signed into law by President Bush. The Act provides for a mechanism to ensure some safety measures on how your pension is performing in the market, such as giving workers greater control over how their accounts are invested and exceptions to the early withdrawal penalty (some workers are allowed to retire before age 59 1/2).
A very important part of the Act applies specifically to emergency services personnel, including police, firefighters, ambulance personnel and many others in Federal, State and local agencies.
Health Insurance Deduction
Qualified retired "Public Safety Officers" may exclude from income the cost of health insurance premiums or long-term care premiums, up to $3000. However, the health insurance premiums must be paid directly from your pension and the health insurance premiums must be paid to an insurance company that is regulated by your State. Self-insured plans do not qualify. Many municipal governments (like the City of Stockton) are self-insured, which then excludes officers from this tax advantage. The Act does NOT require a pension fund to accept a retiree's election to pay premiums directly from your pension.
This may not show in Box 2 of the 1099-R (Retirement Income) you receive for taxes. This exclusion may be shown on the tax return as simply subtracting the exclusion from the figure shown on the 1099-R form, and placing the smaller figure on the pension income line on the 1040. Although this may trigger a letter from the IRS because the amount will not match with the amounts listed on the 1099-R form, it can be responded to with a simple explanation by correspondence with the IRS.
Contact PERS to have your premiums deducted directly from your pension.
Please ensure that you provide me with the amount of premiums you paid during the year, and we will deduct it on your tax return. If you have not previously deducted the amounts, we can prepare an Amended form for up to three years, and get you a small refund!
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