Beginning January 1, 2007, it appears as if retired special agents can now pay their health and long term care insurance premiums with pre-tax dollars. This is something for which NARFE has been lobbying congress for many years for all federal retirees. The Pension Protection Act of 2006 now allows this only for retired public safety officers. The bottom line is that up to $3,000 of our taxable retirement income can now be deducted come pony-up time beginning this tax year.
Many thanks to Craig Beauchamp for spotting this and sending the information to Bob Marsh, and to Bob for sending the information to me for posting.
This is the text version of the OPM Benefits Administration Letter dated June 20, 2007:
United States Office of Personnel Management
The Federal Government’s Human Resources Agency
Benefits Administration Letter Number: 07-201
Date: June 20, 2007
Subject: Pre-tax treatment of FEHB and FLTCIP premiums for Retired Public Safety Officers
under section 845 of the Pension Protection Act of 2006
A recently passed law, The Pension Protection Act of 2006 (PPA), now allows pre-tax payment
of premiums for both the Federal Employees Health Benefits (FEHB) Program and the Federal
Long Term Care Insurance Program (FLTCIP) for a small subset of Federal annuitants.
Although most Executive Branch Federal employees participating in the FEHB Program are
eligible to have FEHB premiums withheld from pay prior to being taxed, under Internal Revenue
rules, this pre-tax “premium conversion” benefit is generally not available to Federal annuitants.
Section 845 of the PPA added a provision to the Internal Revenue Code, effective January 1,
2007. New Internal Revenue Code section 402(l) allows a limited premium conversion tax
advantage for certain annuitants who are retired public safety officers. They can now exclude
from their gross income distributions from eligible retirement plans that are directly used to pay
qualified health insurance premiums and/or long term care insurance premiums. The annual
maximum exclusion is $3,000.
The Office of Personnel Management (OPM) has determined that the Civil Service Retirement
System (CSRS) and the Federal Employees Retirement System (FERS) are eligible retirement
plans under section 845 of the PPA. Retired public safety officers are deemed to have made a
premium conversion election for this purpose. As a result, retired public safety officers whose
CSRS or FERS annuity payments include a direct premium payment to a health insurance carrier
or long term care insurance carrier may self-identify eligibility for, and self-report, the tax
exclusion to the Internal Revenue Service. IRS Publication 721 Tax Guide to U.S. Civil Service
Retirement Benefits at http://www.irs.gov/pub/irs-pdf/p721.pdf contains additional information
on this tax advantage.
If you have any questions regarding this issue, please contact a representative at the individual’s
retirement information system.
Robert F. Danbeck
for Human Resources Products and Services
A pdf file of the actual document can be viewed here.
You can read the legislation here.
IRS publication 721 dealing with this can be viewed and/or downloaded here. The first page highlights this change and more information is given on page 15 of the publication.