If the taxpayer is an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), they can elect to exclude from income distributions made from an eligible retirement plan that are used to pay the premiums for coverage by an accident or health plan or a long-term care insurance contract. The election can only be made if the taxpayer retired because of disability or because they reached normal retirement age. The premiums can be for coverage for the taxpayer, their spouse, or dependents. The distribution must be from a plan maintained by the employer from which the taxpayer retired as a public safety officer. Also, the distribution must be made directly from the plan to the provider of the accident or health plan or long-term care insurance contract. The amount excluded from income is the smaller of the amount of the premiums or $3,000. This election can only be made for amounts that would otherwise be included in income.
For tax years starting in 2017, the amount that is excluded from the taxpayer’s income is entered directly on the 1099R entry menu in Box j – Public Safety Officer. To access this in 2017, from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- IRA/Pension Distributions (1099-R, RRB-1099-R, 8930)
- Select New and fill out the Payer’s Information
- Enter the Gross Distribution in Box 1 as it is shown on the 1099-R
- Do not subtract the amount of any Qualified Retired Public Safety Officer Distribution from the Gross Distribution or adjust the Taxable Amount in Box 2a by the smaller of the amount of premiums or $3,000. Instead, enter the smaller of the amount of the premiums or $3,000 in Box j on the 1099R entry menu and the correct taxable amount will be carried to appropriate line (either Line 7 or 16) on the Form 1040.
- Enter the Distribution Code in Box 7. If the code is a 3 (Disability), you will be given the option to report the income on Form 1040, Line 7. All other distribution codes will carry to Form 1040, Line 16.
- The abbreviation PSO will be displayed in the left margin of the 1040 as well as the premium amount that was entered as a Qualified Retired Public Safety Officer Distribution.
For 2016 and prior years, to exclude the amount for a Public Safety Officer, from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- IRA/Pension Distributions (1099-R, RRB-1099-R, 8930)
- Select New and fill out the Payer’s Information
- Enter the Gross Distribution in Box 1 as it is shown on the 1099-R
- Subtract the amount of any Qualified Retired Public Safety Officer Distribution from the Gross Distribution and enter the difference in Box 2a, Taxable Amount. Exit this menu. The smaller of the amount of the premiums or $3,000 can be excluded (subtracted) from the gross distribution.
- Select the Other / Roth Button
- Select Public Safety Officers Insurance Distribution
- Select ‘YES’
- Select either Form 1040 Line 16 or Form 1040 Line 7. This selection should match the line of the 1040 that the 1099-R income is being reported on, usually line 16. When you view Form 1040, the abbreviation PSO will be displayed in the left margin of the 1040.
If you select Form 1040 Line 7 you will need to input the Amount of Distribution being excluded on Form 1040, Line 7. The amount of the exclusion and the abbreviation PSO will print on the dotted line of Form 1040, line 7.
NOTE: This is a guide on entering Public Safety Officer Distributions into the Keystone Tax Solution program. This is not intended as tax advice.