Health Insurance Distributions

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 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:

• A qualified trust
• A section 403(a) plan
• A section 403(b) annuity
• A section 457(b) plan

The CSRS and FERS are considered eligible retirement plans.

How to report. If you make this election, reduce the otherwise taxable amount of your annuity by the amount excluded. The taxable annuity shown on Form CSA 1099R does not reflect this exclusion.

Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.

Enter “PSO” next to the appropriate line on which you report the taxable amount.

Link to OPM Ruling: http://www.opm.gov/asd/htm/2007/07-201.asp

Link to IRS Ruling: http://www.irs.gov/publications/p721/ar02.html -d0e2437