Article Highlights:
- Public Safety Officers
- Medical Insurance Pension Distribution Exclusion
- The Public Safety Officers' Benefits (PSOB) Program
- Tax-Free Health and Disability Benefits
- Deductible Retirement Plan Contributions
- Special Tax Treatment for Early Retirement Distributions
Public safety officers, including police officers, firefighters, emergency medical technicians (EMTs), and other first responders, dedicate their lives to serving and protecting their communities. Recognizing the risks and sacrifices associated with these professions, the United States tax code provides several benefits aimed at easing the financial burdens of these vital community members. This article explores the various tax benefits available to public safety officers, offering insights into how they can maximize their benefits and reduce their tax liabilities.
A"qualified public safetyemployee"means any employee of a state or political subdivision of a state who provides police protection, fire-fighting services, or emergency medical services for any area within the jurisdiction of that state or political subdivision. Also included are certain federal law enforcement officers, customs and border protection officers, federal firefighters, air traffic controllers, nuclear materials couriers, U.S. Capitol Police, Supreme Court Police, and diplomatic security special agents.
Medical Insurance Pension Distribution Exclusion - This tax provision allows eligible retired public safety officers to exclude from their taxable pension income distributions from governmental retirement plans used to pay for health or long-term care insurance premiums. The premiums can be for the retiree, spouse, or dependents. This is an annual election.
For years prior to 2023, the insurance payment had to be paid directly from the pension plan to the insurance providers to qualify for the exclusion. The SECURE 2.0 Act, however, has removed the direct payment requirement, broadening the accessibility of this benefit. Now, retired public safety officers can avail themselves of this exclusion by including an attestation in their tax return that the distribution does not exceed the amount they paid for qualified health insurance premiums for the year.
The exclusion is capped at $3,000 per year, providing a tangible tax relief to those who qualify. To be eligible, individuals must be retired public safety officers, which includes roles such as police officers and firefighters, among others. The individual must have separated from service, either because of disability or after reaching normal retirement age.
It's important to note that any amount excluded under this provision cannot be deducted as a medical expense for itemized deductions. Furthermore, it is not includible as health insurance for calculating the self-employed health insurance deduction. This ensures that the benefit is not double-counted in any form of tax relief or deduction.
The Public Safety Officers' Benefits (PSOB) Program - A significant benefit for public safety officers is the Public Safety Officers' Benefits (PSOB) Program, which is overseen by the Bureau of Justice Assistance, part of the U.S. Department of Justice. This program provides death and education benefits to survivors of officers who die in the line of duty. Importantly, the death benefit provided under the PSOB program is not taxable. This means that families receiving this benefit will not have to include it in their gross income for tax purposes, providing some financial relief during a difficult time.
Tax-Free Health and Disability Benefits - Public safety officers often have access to health and disability benefits through their employment. In many cases, these benefits are not considered taxable income. For example, amounts received as compensation for personal physical injuries or sickness, including injuries incurred in the line of duty, are generally not taxable. This also extends to disability pensions received before the minimum retirement age set by the employer, provided the disability was caused by an injury sustained in the line of duty.
Deductible Retirement Plan Contributions - Public safety officers often can participate in retirement plans, such as 457(b) plans, that offer tax advantages. Contributions to these plans are made on a pre-tax basis, reducing the officer's taxable income. Additionally, some officers may be eligible for the Retirement Savings Contributions Credit (Saver's Credit), which provides a tax credit for contributions to retirement accounts. This credit is designed to encourage lower and middle-income individuals to save for retirement.
Special Tax Treatment for Early Retirement Distributions - Under certain circ*mstances, public safety officers can take distributions from their retirement plans before reaching age 59½ without incurring the typical 10% early withdrawal penalty. This exception applies to distributions made after the officer separates from service, provided the separation occurs in or after the year the officer reaches age 50. This special tax treatment recognizes the early retirement age of many public safety officers and provides them with greater flexibility in managing their retirement savings.
Tax Cuts & Jobs Act (TCJA) - Before the passage of TCJA in 2018 employee business expenses were allowed to the extent they werent reimbursed by the employer and they exceeded the 2% of adjusted gross income (AGI) threshold of a taxpayers income. These deductions included the out-of-pocket costs for uniforms, equipment, and other job-related items which are common for public safety officers. This category also included education expenses that are related to maintaining or improving job skills. This can include tuition, books, supplies, and travel expenses associated with attending courses or training sessions.
Some public safety officers, particularly those in administrative or investigative roles, may work from home or have a home office. If this space is used exclusively and regularly for work, officers may be eligible to deduct a portion of their home expenses, such as mortgage interest, insurance, utilities, and repairs. This deduction can be calculated using the simplified method (a standard deduction of $5 per square foot of home used for business, up to 300 square feet) or the regular method (based on the percentage of the home used for business). Like other job-related expenses, the home office deduction is not deductible by employees, through 2025. However. . .
Some states, California as an example, did not conform to TCJA for the purpose of the deduction for employee business and still allow that deduction for state purposes.
In addition, TCJA expires at the end of 2025, and unless Congress intervenes these deductions will possibly be federally tax deductible again soon.
Public safety officers perform essential services for their communities, often at great personal risk. The tax benefits available to them are a small token of appreciation for their dedication and sacrifice. By taking advantage of these benefits, public safety officers can reduce their tax liabilities and secure a better financial future for themselves and their families. If you have questions related to any of the tax benefits discussed, please give this office a call.
