Thanks, Bill- I have no other pensionable income in 2023, just the disability LEO pension. The other 2023 income from employment was taxed already when paid in January/February 2023. I retired late January.
PSO qualify for this $3K deduction now in 2023 tax situations whether the pension plan payed for healthcare or the individual paid for the healthcare. That payer requirement has been struck down in the HELPS ACT by the 12-19-2022 SECURES ACT 2.0, which changed the requirement. The IRS 2023 1040 instructions do not reflect this change at all, and it instructs me to "If you are retired on disability and reporting your disability pension on line 1h, include only the taxable amount on that line (ZERO for me) and enter PSO and the amount excluded on the dotted line next to line 1h."
The 2022 (current) IRS FORM 575 covers our disability pensions and insurance premiums for retired PSO. These instructions also do not reflect the changes in the SECURES ACT 2.0. But they advise "...reduce the other wise taxable amount of your pension (ZERO for me) by the amount excluded ($3000) ... The 2a amount in 1099-R does not reflect this exclusion...report total distributions on 5a. Report taxable amount on 5b and PSO on taxable amount line.
I think the IRS missed this because surely it can't get reported twice on the 1040 in Line 1 data. I will have to go to the IRS for clarification Monday and directive on how to take the deduction, correctly file it and then come back to TurboTax to see if the platform here can do it correctly to get my deduction of the $3K and not end up wrong and audited. Thanks so much for helping me.
The change in the Secure Act 2.0 was to allow you to take the deduction even when the pension administrator did not make the payment directly to the insurance company (as was previously required); instead, the taxpayer could now have paid that same up to $3,000 to the insurance company and gotten the deduction.
However, the Code ("I.R.C. § 402(l)(5)(A)(i) In General ) referred to above, states that deduction is to be taken against distributions from a an Employees' Trust as defined in section 402. That is, the $3,000 is a deduction to a distribution from your pension.
However, the $3,000 can be a deduction only against taxable income from a pension. You don't seem to have any, since your $40,000 is tax-free (due to disability). This is why you are not seeing the $3,000 deduction, because you have no taxable pension income to take it against.
Even if you had other taxable income, like from an IRA, there is no taxable income from a pension for you to take this $3,000 deduction. As best as I can see from reading the current Code, TurboTax is working correctly. Where do you think the $3,000 deduction ought to appear?
