Police and Fire Deductions

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FRANKC221
FRANKC221 Member Newcomer
edited November 2023 in Filing my taxes

Will your tax form have the updated information on police and fire deductions??

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  • MatthewD
    MatthewD FreeTaxUSA Team
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    Hello FrankC221,

    Yes, we have updated the software to allow for this deduction.

    I can see you are keeping up on the news! This is a great question. In January 2023 the president signed into law, legislation sponsored by Congresswoman Abigail Spanberger which would protect early public safety officer's health insurance. The law was named after Wally Bunker a retire police lieutenant.

    Basically, it allows retired public safety officers to withdraw $3,000 tax-free from their pension plan annually to pay health or long-term care insurance premiums. Previously the law required that the premiums be paid directly from the pension plan to the insurer. This law changes that, and allows the insured to take the retirement distribution directly and then pay the insurer.

    In FreeTaxUSA, when you enter your 1099-R, at the bottom of the Retirement Income (Form 1099-R) screen there will be a question that asks if you are a retired public safety officer. If you answer "Yes" to that question, then on one of the following screens you will be asked to enter any PSO distributions used for health insurance premiums.

  • FRANKC221
    FRANKC221 Member Newcomer
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    There is new legislation on eliminating taxing your pension. I knew about the $3000. Our union President said most tax preparers are not aware of this new legislation. I was hoping you were.

  • MatthewD
    MatthewD FreeTaxUSA Team
    edited November 2023
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    Hi FrankC221,

    That is a good point. It is kind of obscure and not all tax preparers will be aware of the little change. It is still a part of the Healthcare Enhancement for Local Public Safety (HELPS) Retirees Act from a prior year.

    The difference in the old legislation from 2006 and the new 2023 legislation is that the new legislation allows you to take a retirement withdrawal and use it to pay for health insurance or long-term care insurance and pay the insurance agency yourself. Previously the insurance agency had to be paid directly by the retirement administrator. The $3,000 amount did not change. I am sure not all preparers may be aware of the changes; however, we have built it into our software so you can do that.

    When you enter the 1099-R, you check a box that you are a retired PSO and then on a following page, you enter up to $3,000 paid for insurance.

    Here is a link to information on the law from Congresswoman Abigail Spanberger's website.

    https://spanberger.house.gov/posts/president-signs-into-law-spanbergers-bipartisan-legislation-to-protect-tax-credits-of-retired-police-officers-firefighters