What Is Public Law 108-89 for Public Safety Officers?
Learn about the federal tax provision allowing retired public safety officers to use government pension funds to pay for health insurance premiums tax-free.
A federal law provides a tax benefit for retired public safety officers, helping manage health insurance expenses after their service concludes. Part of the Pension Protection Act of 2006, this provision allows retirees to exclude a portion of their retirement income from federal taxes when used for qualified health insurance premiums. The law, codified in Internal Revenue Code Section 402, is designed to provide financial relief for those who have spent their careers protecting communities.
Eligibility for the Health Insurance Premium Exclusion
To qualify for this tax benefit, an individual must be an “eligible retired public safety officer.” This includes roles such as law enforcement officers, firefighters, chaplains, and members of a rescue squad or ambulance crew. The individual must also have separated from service with the employer that maintains their retirement plan.
An officer must have separated from service either due to a disability or after reaching the normal retirement age as defined by their retirement plan. This means that individuals who leave service early for reasons other than disability or reaching full retirement age are not eligible for this tax exclusion.
The exclusion applies to “qualified health insurance premiums” paid from an “eligible retirement plan.” Qualified premiums are payments for accident, health, or long-term care insurance covering the retiree, their spouse, and dependents, and can be for plans not sponsored by the former employer. The funds must come from a governmental retirement plan, such as a 401(a), 403(b), or 457(b) plan. Distributions from Individual Retirement Arrangements (IRAs) do not qualify for this tax benefit.
Calculating and Reporting the Tax Benefit
The maximum amount that can be excluded from income annually is $3,000. The excludable amount is the lesser of the total qualified insurance premiums paid for the year or the $3,000 limit. For example, if a retiree paid $4,000 in premiums, they can exclude $3,000; if they paid $2,500, they can only exclude $2,500.
This benefit is reported on federal income tax Form 1040. The retiree reports the total pension distribution on line 5a. On line 5b, they report the taxable amount, which is the total distribution minus the excluded amount. The filer must write “PSO,” for Public Safety Officer, next to line 5b. Any premiums excluded this way cannot also be claimed as a medical expense deduction.