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Change to Pension Protection Act Qualified Medical Deduction Process

The City of Austin Police Retirement System recently received further information from the IRS regarding section 845 of the Pension Protection Act of 2006. This section allows for up to $3,000.00 of qualified insurance premiums to be excluded from taxable income for Public Safety Officers. The IRS has advised retirement plans that they should not change their reporting of distributed amounts to reflect medical premium payments that retired Public Safety Officers may elect to exclude from their taxable incomes. This means that even if you signed and return the election form that the Pension Office mailed out earlier this year, the amount that is used to pay the medical premiums will remain taxable income until you make the election on your personal income tax return. APRS will report the Taxable Amount in Box 2a of the form 1099R. The retirement plan is not the entity making the decision that the medical premium payments should be excluded from the individual's taxable income. That is an election which must be made by you partially because the retirement plan may not have sufficient information to determine whether your payments can be excluded. For example, you may be receiving retirement income from two or more separate plans. The IRS 1040 form, will contain a special code for you to indicate that you are electing to exclude the medical premium payments from your taxable income. You must reduce the taxable amount on line 16b of the 1040 form by the amount of the exclusion and enter 'PSO' next to that line. Any questions regarding the new IRS ruling of the Pension Protection Act can be directed to Stephanie Willie, Assistant Pension Administrator or Michelle Waller, Benefit Services Specialist at (512) 416-7672.

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