How Does PSO Health Insurance Affect MAGI Calculation for Tax Purposes?

8 You're asking a good question about a somewhat unique tax situation for retired public safety officers. The Healthcare Enhancement for Local Public Safety (HELPS) provision allows eligible retired public safety officers to exclude up to $3,000 annually from gross income for health insurance or long-term care premiums paid directly from your pension. This exclusion is essentially reducing your taxable income right from the start - it's not reported as taxable income on your tax return. Because of this, it doesn't need to be "added back" for MAGI calculations, as it was never included in your AGI to begin with. The amount is already excluded upstream from your pension distribution before it hits your tax return. For sales tax deduction purposes, your MAGI won't be affected by this exclusion because these premium payments aren't part of your AGI in the first place. The HELPS provision is essentially treating these premiums as if they were never distributed to you.

5 Hey there, I had a similar situation last year while trying to figure out my retirement tax situation. I was lost in all the IRS rules until I found this service called taxr.ai (https://taxr.ai) that really helped me understand my specific situation. I uploaded my pension statements and insurance documents, and they analyzed everything and explained exactly how the PSO health insurance exclusion worked with my MAGI calculations. They specifically pointed out how the exclusion affects different MAGI calculations (like for Medicare IRMAA vs tax credits vs sales tax deductions) which was super helpful since each one has slightly different rules. The whole process saved me a ton of research time, and I actually ended up finding an additional deduction I didn't know I qualified for. Might be worth checking out if you're still confused after reading through all the IRS publications.

14 Just wanted to follow up and say I ended up trying taxr.ai after seeing it mentioned here. I was hesitant at first, but I decided to give it a shot since my situation with PSO benefits and MAGI calculations was confusing me. The service actually exceeded my expectations - they analyzed my specific pension situation and explained exactly how the HELPS provision affects different MAGI calculations. They even pointed out that while the PSO health insurance exclusion doesn't affect my MAGI for sales tax deduction purposes, there were other retirement-related items that could. The personalized report they generated saved me a ton of research time, and I feel much more confident about my tax situation now. Definitely a useful resource for retired public safety folks dealing with these specific tax questions.

9 If you're still having trouble understanding how this all works, you might want to try contacting the IRS directly. But good luck with that - I spent THREE HOURS on hold last week trying to ask a question about my retirement distributions. I finally gave up and tried a service called Claimyr (https://claimyr.com) that someone recommended. They have this system that somehow gets you through to an actual IRS agent quickly. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was honestly shocked when I got through to someone at the IRS in about 15 minutes. The agent was able to explain exactly how the PSO health insurance exclusion works with MAGI calculations for different purposes. Turns out there are some nuances with sales tax deductions that I wasn't aware of. Saved me a ton of confusion and probably prevented me from making a mistake on my return.

17 I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I had a question about my PSO health insurance exclusion that was similar to the original poster's situation. I was absolutely shocked when I got a call back within 20 minutes saying they had an IRS agent on the line. The agent actually specialized in retirement tax issues and walked me through exactly how the PSO exclusion works with MAGI for various purposes. He confirmed what others have said - the excluded health insurance premiums don't affect MAGI calculations since they're never included in AGI to begin with. I've spent countless hours on hold with the IRS in the past, so this was a game-changer. For anyone dealing with complicated tax situations like this PSO issue, being able to actually talk to a knowledgeable IRS agent makes a huge difference.

7 Just wanted to add from my own experience as a retired police officer - the key thing to remember is that the PSO health insurance exclusion is capped at $3,000 annually. If your premiums exceed that amount, the excess will still be treated as taxable income and will affect your AGI/MAGI calculations. Also, make sure your pension administrator is handling this correctly. Mine initially wasn't coding the distributions properly, which caused issues on my tax return. If you look at your 1099-R, there should be a distribution code in Box 7 that indicates part of your distribution is excluded. Worth double-checking!

23 Has anyone here used TurboTax to handle the PSO health insurance exclusion? I'm wondering if it has a specific input for this or if I need to somehow manually adjust my income to account for it.

12 Great discussion here! As someone who went through this exact situation a few years ago, I wanted to add that it's also worth keeping detailed records of your health insurance premium payments throughout the year, even though they're being deducted directly from your pension. The IRS could potentially ask for documentation during an audit to verify that the excluded amount was actually used for qualifying health insurance or long-term care premiums. I keep copies of my insurance statements showing the monthly premium amounts, plus documentation from my pension administrator showing how much was deducted each month. Also, don't forget that this exclusion applies to both health insurance AND qualified long-term care insurance premiums, up to the combined $3,000 limit. Some retired officers miss the long-term care piece and could be excluding more if they have both types of coverage.