Change to Pension Protection Act Qualified Medical Deduction Process:

PSPRS recently received further information from the IRS regarding section 845 of the Pension Protection Act of 2006. This section allows for up to $3,000.00 of qualified insurance premiums to be excluded from taxable income for Public Safety Officers. The IRS has advised retirement plans that they should not change their reporting of distributed amounts to reflect medical premium payments that retired Public Safety Officers may elect to exclude from their taxable incomes. This means that even if you signed and returned the election from that the Pension Office mailed out earlier this year, the amount that is used to pay the medical premiums will remain taxable income until you make the election on your personal income tax return. The retirement plan is not the entity making the decision that the medical premium payments should be excluded from the individual’s taxable income. That is an election which must be made by you partially because the retirement plan may not have sufficient information to determine whether your payments can be excluded. For example, you may be receiving retirement income form two or more separate plans. The IRS 1040 form, will contain a special code for you to indicate that you are electing to exclude the medial premium payments from your taxable income. You must reduce the taxable amount on line 16b of the 1040 form by the amount of the exclusion and enter ‘PSO’ next to that line. If you use the 1040A form the line is 12B and you would still enter ‘PSO’ next to the line.