How to Exclude Certain Pension Amounts From Income
Pensions and retirement annuities may be fully taxable on your tax return; however, if you contributed to the cost of the pension or annuity plan, part of the distribution to you could be non-taxable. Retired public safety officers (PSO) such as law enforcement, firefighter or ambulance crew, can elect to exclude retirement plan distributions from income when used to pay premiums for health or long-term care insurance.
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Instructions
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Add all gross distributions from pensions and annuities together and reflect the total on line 16a of your Form 1040 tax return, or line 12a of Form 1040A. The gross pensions or annuities should be reported to you on Form 1099-R.
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Subtract the applicable amounts that you contributed in after-tax income to the retirement plan which pertains to the gross distribution for the year to arrive at the taxable income to report on line 16b of Form 1040 or on line 12b of Form 1040A. These taxable amounts could also be shown in Box 2a of Form 1099-R.
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Elect to further reduce your taxable pension or annuity income if you are a retired public safety officer and pension distributions are reduced to pay for health insurance or long-term care insurance. This is only allowed if the amounts reported in Box 2a of Form 1099-R have been reduced for any insurance premiums.
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Exclude from income the actual premiums paid for health or long-term care insurance up to a maximum of $3,000 total deduction. As noted above, this election can only apply toward amounts that would be included in your income before the election is made.
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Indicate "PSO" (for Public Safety Officer) alongside the taxable amount shown on line 16b of Form 1040, or 12b of Form 1040A, after you have subtracted the insurance premiums.
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