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IRS Interpretation Delays Implementation of $3,000 Tax Exclusion for Retiree Health Insurance Premiums

One of the provisions of the Retiree HELPS Act which was passed in 2006, allows Public Safety retirees up to a $3,000 tax exemption on health insurance premiums to be deducted from their Adjusted Gross Income under qualified circumstances. In anticipation of implementing this new provision, APRS mailed out election forms to our retirees so that they could elect to participate in the program. Since that time, APRS has received many calls from our retirees who have been looking forward to the reduction in the taxes withheld from their monthly pension benefits. Unfortunately, a technical hurdle has caused us to hold off on implementing this new provision. The U.S. Treasury Department and the IRS have interpreted the new law very narrowly and in a way that disqualifies Retirees from eligibility for the tax exclusion if their health insurance is "self insured", as is the case with a portion of the City of Austin's insurance plans as well as a majority of the larger public entities in the U.S. Because of this interpretation, the lawyers for our custodial company have advised us that we cannot implement the tax exclusion until the interpretation is changed. APRS is working diligently with our custodial company and our lawyers to get either the law or the narrow interpretation of that law changed. We have national support for our position and a reasonably confident that this will be straightened out in favor of our Retired Members before the end of the year. In the meantime, APRS cannot apply the tax exclusion during the year, but will apply for the exclusion at the end of the year when we prepare your 1099 tax report for 2007. Because of this action, our Retirees will not see a reduction in the taxes withheld from their pension benefit during the year. Please understand that APRS expects to be able to apply the full tax advantage of the tax exclusion that our Retirees are entitled to at year end assuming the law gets changed or reinterpreted.

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