Increased HELPS Act Flexibility

On January 1st, 2007, the HELPS Act went into effect as part of the Pension Protection Act.  

This law enables retired public safety officers (firefighters, as well as members of a rescue squad or ambulance) to pay for healthcare premiums by allowing the exclusion of up to $3,000 annually from gross income after separating from service as a result of disability or the attainment of normal retirement age. 

Until recently, the HELPS Act required premium payments to be made directly to the insurance provider from the eligible retirement plan. The SECURE 2.0 Act repealed the direct payment requirement, enabling payments to be made by the retiree and then excluded from gross income, not to exceed the lesser of $3,000 or the amount paid for the insurance. 

The exclusion can only be made for amounts that would otherwise be included in income and the amount excluded from income cannot be used to claim a medical expense deduction (the IRS doesn’t like double-dipping on tax advantages). 

The HELPS Act may be used to extend the longevity of your Post Employment Health Plan (PEHP) and/or your retirement portfolio. 

For example, in order to pay $3,000 in insurance premiums out-of-pocket, a retiree may elect to reduce their PEHP reimbursement by $250 per month. 

$250 x 12 months = $3,000 per year 

The Form 1099-R you’ll receive for retirement income does not reflect this exclusion. It is up to your tax preparer to ensure you receive your HELPS Act benefit. 

If it makes sense for you to take advantage of the HELPS Act, I highly recommend sending this article to your accountant and asking them to place it in your file as a reminder to ensure you receive the appropriate tax advantage each year! 

Qualified insurance premiums include the following for the retiree, their spouse, and any dependents while the public safety officer is living: 

• Accident insurance 

• Health insurance 

• Vision 

• Dental 

• Medicare Advantage 

• Medicare supplements 

• Long-term care premiums  

Retirees should consult with their retirement plan administrator to verify eligibility and seek counsel from an accountant or certified tax preparer to ensure proper execution and reporting to the IRS. 

For a lot of retirees, this simple step will save hundreds of dollars in taxes every single year throughout retirement. 

*Printable version below!