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Per IRS Publication 575 Pension and Annuity Income, on 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), 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 can't 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 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 or 1040-SR, line 1; or Form 1040-NR, line 1a, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line.

In TaxAct, there is a checkbox on Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. and within the Q&A interview to indicate if the Form 1099-R distribution was used by an eligible retired public safety officer (PSO) to pay premiums for accident or health insurance or long-term care insurance. The amount entered here will reduce the taxable amount on Form 1040 U.S. Individual Income Tax Return, Line 4d and "PSO" will print as instructed by the IRS.

To enter this in the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand, then click IRA, 401(k), and pension plan distributions (Form 1099-R).
  3. Click + Add Form 1099-R to create a new copy of the form or click Edit to review a form already created:
  4. Click either Quick Entry to enter the information directly on the supporting form or click Step-by-Step Guidance to proceed with the interview (continue with the following appropriate steps).
    • Quick Entry
      In Box 7 Distribution code(s), if the numeric code is a "1," "2," or "7," there is no alpha code, and the IRA/SEP/SIMPLE box is not checked, then scroll down to and check Insurance Premiums for Retired Safety Officers (PSO) and enter the smaller of the amount of insurance premiums paid or $3,000. Click Save & Close in the top to save the information and close the form.
    • Step-by-Step Guidance
      On the screen titled Retirement Plan Income - Box 7, if the distribution code is a "1," "2," or "7," there is no alpha code, and the 7. IRA/SEP/SIMPLE box is not checked, then continue to the screen titled Retirement Plan Income - Special Distributions. Check Retired Public Safety Officer (PSO) insurance distribution, then click Continue. On the screen titled Retirement Plan Income - Retired Public Safety Officer Insurance Premiums, enter the PSO insurance premium amount, then click Continue.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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