When the taxpayer is an eligible "retired public safety officer", defined by the IRS as a "law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew", they can elect to exclude up to $3,000 of the distributions they receive from an eligible retirement plan from their taxable income. To be eligible for this exclusion, the funds must be used to pay for accident or health insurance premiums or the premiums associated with a long-term care contract for the taxpayer, their spouse, or their dependents.
Important points:
- The taxpayer retired either because of a disability or they reached their normal retirement age.
- The retirement plan must be a governmental plan that is a qualified trust or a section 403(a), 403(b), or 457(b) plan.
- The distribution must be from a retirement plan maintained by the employer from which the taxpayer retired as a public safety officer and cannot be from some other retirement plan.
- 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 election can only be made for amounts that would otherwise be included in income.
The amount excluded from income is the smaller of the amount of the premiums or $3,000.
Click the year below for details on how to enter the PSO exclusion in TaxSlayer Pro.
2018 and following tax years
For tax year 2018 and following, the amount that is excluded from the taxpayer's income is entered directly in the tax program on the 1099-R entry window in Box j - Public Safety Officer. To access this 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 1099-R entry window and the correct taxable amount will be carried to appropriate line (either Line 1 or 4b) on page 2 of the Form 1040.
- Enter the Distribution Code in Box 7. If the code is 3 (Disability), you will be given the option to report the income on Form 1040, Line 1. All other distribution codes will carry to Form 1040, Line 4d (in 2018, Line 4b).
- 4d: PSO will print at the bottom of page 1 of the 1040 indicating the reason for the difference between Lines 4c and 4d. (In 2018, 4b: PSO will print at the bottom of page 1.)
2017 tax year
For tax year 2017, the amount that is excluded from the taxpayer's income is entered directly in the tax program on the 1099-R entry window in Box j - Public Safety Officer. To access this 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 1099-R entry window 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 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 print in the left margin of the 1040 as well as the premium amount that was entered as a Qualified Retired Public Safety Officer Distribution.
2016 and prior tax years
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 window. 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 print 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 TaxSlayer Pro program. This is not intended as tax advice.
Additional Information
Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits
