Can retired public safety officers exclude insurance premiums from a pension?

The exclusion in a sentence

If you are an eligible retired public safety officer, Publication 575 says you can elect to exclude from income distributions from your eligible retirement plan that are used to pay premiums for coverage by an accident or health plan or a long-term care insurance contract. You exclude the smaller of the amount of the insurance premiums or $3,000. It is an election, so you choose it on your return. It is also only available for amounts that would otherwise be included in your income, which means a tax-free return of your own cost is not a candidate.

Who is an eligible retired public safety officer

The publication defines the group: a law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew who is retired because of disability or because they reached normal retirement age. The coverage can be for you, your spouse or your dependents. The distribution must come from the plan maintained by the employer from which you retired as a public safety officer.

Which plans qualify

An eligible retirement plan is a governmental plan that is a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. A private-sector plan does not qualify. The reminders section of the 2025 publication notes a change: the direct payment requirement was repealed for distributions made after December 29, 2022. The exclusion now applies whether the premiums are paid straight to the insurer by deduction from the distribution, or the distribution is made to you and you pay the insurer.

How to report it

Reduce the otherwise taxable amount of your pension or annuity by the amount excluded. The publication warns that box 2a of Form 1099-R does not reflect this exclusion. Report your total distributions on Form 1040, 1040-SR or 1040-NR line 5a and the taxable amount, after the exclusion, on line 5b, then check the PSO box on line 5c. If you retired on disability and report your disability pension on line 1h, include only the taxable amount on that line and write PSO and the amount excluded on the dotted line next to it.

The Simplified Method Worksheet carries the same warning on line 9: if you are a retired public safety officer, read this section before entering an amount on your return.

Worked example

A retired firefighter receives $36,000 from a governmental 457(b) plan, all otherwise taxable, and has $5,200 of health premiums paid from the distributions. The smaller of premiums ($5,200) and $3,000 is $3,000, so $3,000 is excluded and $33,000 is taxable. Line 5a shows $36,000 and line 5b shows $33,000, with PSO checked. If the premiums were $2,400, the exclusion would be $2,400. If only $2,000 of the pension were otherwise taxable, the exclusion could not exceed $2,000. The calculator applies those same limits.

Interaction with other deductions

The publication says the amount excluded cannot be used to claim a medical expense deduction. The publication does not address premiums paid above the excluded amount, so use the medical expense rules for those. If the same pension is partly taxable because of after-tax contributions, calculate that tax-free recovery first and apply the exclusion to the taxable remainder.

Limits

The $3,000 limit applies to the tax year. This page summarizes the 2025 publication; whether your plan is eligible, and whether your premiums qualify, depends on plan documents and the officer’s retirement status. The plan administrator and a tax professional can confirm this for your situation.

Sources

• IRS Publication 575, Pension and Annuity Income (2025): Insurance Premiums for Retired Public Safety Officers; Reminders (direct payment requirement repealed); Partly Taxable Payments. Read November 2, 2026.

Edition read: Publication 575 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.