June 2026 - EverPar Advisors

Most retired public safety officers qualify for a $3,000 annual tax exclusion on healthcare premiums. Here’s what it is, how SECURE Act 2.0 made it easier to claim, and what to do if you’ve been missing it.

By Courtney Hoffman, CFP®, AAMS™ EverPar Advisors

If you’re a retired public safety officer, there’s a federal tax benefit sitting in the Internal Revenue Code that was written specifically for you. A lot of officers have never heard of it, and a fair number who have heard of it aren’t claiming it correctly.

I recently sat down with Ken Petrashek, CFP® to walk through some of the most common questions we’ve been getting since the SB102 campaign, and this topic kept coming up. So we put together a full video on it, and this post covers the key points for anyone who wants it in writing.

What the PSO Exclusion Is

The PSO exclusion was created under the Pension Protection Act of 2006 and lives in Section 402(l) of the Internal Revenue Code. It allows eligible retired public safety officers to exclude up to $3,000 per year from their gross income, as long as that amount goes toward qualified health insurance premiums.

This applies to retired law enforcement officers, firefighters, and other public safety personnel covered under a governmental pension plan. It is not limited to OPPRS members. If you retired from any qualifying public safety position anywhere in the country, this likely applies to you.

The dollar amount on its own is not life-changing. At a 22% federal tax bracket, $3,000 excluded saves you around $660 in federal taxes for the year. But across a 25-year retirement, that compounds to roughly $16,500, and it stacks with other planning decisions in ways that matter.

One other thing worth noting: the Fraternal Order of Police is currently lobbying Congress to raise that ceiling from $3,000 to $6,000. Nothing is guaranteed, but if that change happens it would be a significant benefit for retired officers and their families.

How SECURE Act 2.0 Changed the Rules

Under the original 2006 legislation, claiming the exclusion required your pension system to pay your insurance premiums directly to the carrier. That created a significant administrative burden for pension boards, and a lot of officers either gave up on the process or never knew it was available to them.

SECURE Act 2.0, passed at the end of 2022, removed that requirement. Under the updated rules, you can pay your premiums yourself and still claim the exclusion when you file your taxes at year end. Both paths now work, direct billing through your pension or self-pay and reconcile at tax time. This change meaningfully reduced the friction for officers trying to use the benefit, and most people haven’t heard about it yet.

How to Claim It on Your Tax Return

This is where a lot of returns go wrong, even with a competent preparer involved.

When you file, you will receive a 1099-R showing your gross pension distribution for the year. Here is how the exclusion gets applied on your 1040:

Line 5A is where you report the full gross distribution. If you received $50,000 in pension distributions, that full $50,000 goes on line 5A.

Line 5B is where you report the taxable amount. You subtract the qualified premium amount, up to $3,000, and report the reduced figure there. In the same example, that would be $47,000 on line 5B.

The letters PSO must appear next to line 5B. That stands for Public Safety Officer, and it is the signal to the IRS that you are claiming this exclusion. Tax software will generally walk you through this, but a fair number of CPAs will miss it if you don’t bring it up directly. If someone else is filing your return, make sure they know about this before they file.

On the documentation side, you do not need to attach proof to your return, but you should keep it on file in case of an audit. That means premium receipts, explanations of benefits from your insurer, and a copy of your 1099-R for the year. Think of it similarly to how you would document an HSA.

What Counts as a Qualified Premium

The range of qualifying coverage is broader than most people expect. The following all count:

Accident or health insurance
Qualified long-term care insurance
Medicare Part B and Part D
Premiums through your department’s retiree plan
ACA Marketplace policies
A spouse’s employer group plan, if you are covered under it
COBRA coverage

Coverage can be for you, your spouse, or your dependents.

One important exception: Medigap premiums, also known as Medicare Supplement premiums, do not qualify. If that is your only coverage, the exclusion would not apply to those specific costs.

The DROP Withdrawal Trap Most Officers Don’t See Coming

This is a planning issue that comes up frequently and deserves its own mention.

When you take a large distribution from your DROP account, that amount is taxable in the year you receive it. A large enough withdrawal can push your income into a higher tax bracket for that year, which is something most people are aware of going in.

What catches people off guard is the IRMAA bracket. IRMAA stands for Income Related Monthly Adjustment Amount, and it determines how much you pay for Medicare Part B and Part D premiums. The way it works is that Medicare looks back two years at your income to set your premium amount. So if you take a large DROP distribution today, you may not feel the impact until two years from now when your Medicare premiums come in significantly higher than expected.

The way to handle this is through coordinated planning. You may not be able to avoid it entirely, but if you know it is coming you can plan around it and set aside what you need ahead of time. The problem compounds when the planning is not done ahead of the distribution.

When to Start the Planning Process

We recommend starting six to twelve months before your anticipated retirement date. That gives us enough runway to look at your retirement date, your DROP distribution timing, your healthcare bridge strategy, and your tax situation as one coordinated plan rather than a series of separate decisions made at the last minute.

If you are already retired and are not sure whether you have been claiming the PSO exclusion, go back and look at your last few tax returns. Check line 5B on your 1040. If PSO is not listed there and you were paying qualified premiums, you may be able to amend those returns and recover what you missed. The standard amendment window is three years.

The planning window is genuinely wide before retirement. It gets narrow quickly once you are past it. If you have questions about any of this or want to walk through your specific situation, reach out to our team at everpar.com. We would be glad to help.

EverPar Advisors is a Registered Investment Adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. This article is for informational and educational purposes only. It is not intended as investment, tax, or legal advice. Consult with a qualified professional before making any investment decisions. Past performance is not indicative of future results.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

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The views expressed in this commentary are subject to change based on market and other conditions. This commentary may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

The wrong Social Security decision can follow you for life. Here is what to know before you make it.

By Courtney Hoffman, CFP®, AAMS™ EverPar Advisors

Social Security seems straightforward until you start getting close to claiming it. At that point, most people realize there are a lot of moving pieces, and the decisions you make are some of the most permanent ones in your entire retirement plan.

In a recent conversation, Ken Petrashek, CFP® and I walked through six of the most common Social Security myths we hear from clients. Here is what we covered.

Myth 1: Waiting Until 70 Is Always the Smartest Move

Delaying Social Security until 70 is often presented as the obvious choice, but whether it actually makes sense depends on your individual situation.

The math behind the decision comes down to a break-even analysis. If you delay claiming, your monthly benefit increases, but you receive fewer years of payments. For most people, the break-even point lands somewhere in the early eighties. If you have strong longevity in your family, waiting can make a lot of sense. If you have known health factors that may shorten your life expectancy, claiming earlier could result in a higher total lifetime benefit.

Source: https://www.ssa.gov/benefits/retirement/planner/agereduction.html

Marital status is another major factor. If one spouse is a significantly higher earner, delaying their benefit can protect the surviving spouse, since the survivor will step up to the higher amount when the first spouse passes. Cash flow also plays a role. If you have limited savings and need the income, claiming earlier may be the right call. If you have a large portfolio and do not need the money, waiting gives you more flexibility.

The bottom line is that the right age to claim is not a universal answer. It requires running a personalized break-even analysis that accounts for your health, your spouse’s situation, your cash flow needs, and your overall financial picture.

Myth 2: My Social Security Decision Only Affects Me

If you are married, your Social Security decision has a direct impact on your spouse, both while you are both alive and after one of you passes.

On the spousal benefit side, the lower-earning spouse can receive up to 50% of the higher earner’s benefit at their full retirement age. That calculation is based on the higher earner’s primary insurance amount, meaning the benefit at their full retirement age, not the delayed amount at 70. When the higher-earning spouse passes, the surviving spouse steps up to that larger benefit amount. This means that if the higher earner claimed early and locked in a reduced benefit, the survivor carries that reduction for the rest of their life.

Source: https://www.ssa.gov/benefits/retirement/planner/applying7.html

There is also a provision worth knowing for divorced individuals. If you were married for ten years or more and have not remarried, you may be eligible to claim benefits based on your ex-spouse’s earning record, with no impact to them whatsoever. The key requirements are that the marriage lasted at least ten years, you remain unmarried, and your benefit based on their record would be higher than your own.

Myth 3: Social Security Income Is Not Taxed in Retirement

This one surprises a lot of people. Up to 85% of your Social Security benefit can be subject to federal income tax, depending on your total income in retirement.

The calculation is based on something called provisional income, which is your adjusted gross income plus any tax-exempt interest plus 50% of your Social Security benefits. For individuals, provisional income above $34,000 means up to 85% of your benefits are included in taxable income. For married couples filing jointly, that threshold is $44,000.¹

¹https://www.irs.gov/publications/p915

Sources: https://www.irs.gov/publications/p915 https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

What makes this particularly important is that these thresholds were set in 1984 and have never been adjusted for inflation. In today’s dollars, a retiree drawing from an IRA, receiving a pension, and collecting Social Security will often exceed these thresholds without realizing it.

There are a couple of things people commonly overlook in this calculation. Municipal bond interest is often thought of as federally tax-exempt, but it does count toward your provisional income. Large one-time IRA withdrawals, such as purchasing a vehicle or funding a major trip, can also spike your income in that year and pull more of your Social Security benefit into taxable territory.

The best approach is to model these scenarios in advance as part of your broader financial plan so you are not caught off guard when it happens.

Myth 4: I Should Claim Early Before Social Security Goes Broke

Concerns about Social Security’s long-term funding are legitimate, but the conclusion many people draw from them — that they should claim as early as possible to lock in their benefit — tends to work against them.

Current projections suggest there could be a shortfall in the Social Security trust fund around 2035, but that projection assumes Congress takes no action. Congress has addressed Social Security shortfalls more than 20 times since 1935. Given the sheer number of Americans who depend on these benefits, it would be politically untenable to let the program fail. The more realistic worst-case scenario is a reduction in benefits, not a complete suspension.

The flawed logic of claiming early to protect yourself is worth examining directly. If Social Security actually ran out of funds entirely, the fact that you started receiving benefits at 62 would not protect you. What it would do is lock in a permanent 30% reduction to your benefit for the rest of your life.

Myth 5: I Can Take Social Security Any Time After 62

Technically, you can begin collecting Social Security at 62. But if you are still working when you do, there is an important rule that most people are not aware of until it affects them.

The Retirement Earnings Test applies to anyone who claims benefits before their full retirement age, which is 67 for most people today, while continuing to earn income from work. In 2026, if you earn more than $24,480 in wages or self-employment income, one dollar of your Social Security benefit is withheld for every two dollars you earn over that limit. In the year you reach full retirement age, the limit rises to $65,160,¹ and the withholding rate drops to one dollar for every three dollars over the limit. Once you actually reach 67, the test no longer applies and you can earn as much as you want without any reduction.

¹https://www.ssa.gov/benefits/retirement/planner/whileworking.html

Source: https://www.ssa.gov/benefits/retirement/planner/whileworking.html

It is worth noting that the test only looks at wages and self-employment income. Investment income, IRA withdrawals, pension income, rental income, and capital gains do not count.

To put real numbers to it: imagine you are 64 years old, collecting $1,500 per month in Social Security, and earning $44,480 in part-time income. You are $20,000 over the limit. That means $10,000 of your Social Security benefits would either be withheld or need to be paid back. You do eventually get that money back once you reach full retirement age, but in the meantime the government holds it, which is effectively six or seven months of benefits you do not have access to.

This rule catches a lot of people off guard, particularly those who plan to retire from a full-time career but continue doing consulting work. The most important factor when considering early claiming is whether you will still be earning income.

Myth 6: My Advisor Automatically Handles All of This

Social Security planning does not happen in isolation. It connects directly to Medicare, and one of the most overlooked connections involves something called IRMAA, which stands for Income Related Monthly Adjustment Amount.

IRMAA is a surcharge added to your Medicare premiums based on your income from two years prior. This two-year lookback is where people run into trouble. A large income event at age 63, whether that is a Roth conversion, a significant IRA withdrawal, or a pension-to-annuity transfer, can show up in your Medicare premium calculation at age 65.

Ken shared a real example from his practice: a client whose company converted his defined benefit pension into an annuity. His monthly take-home income did not change at all, but the transaction appeared as over a million dollars of income on paper for that year. His Medicare premiums spiked as a result. He appealed twice and was denied both times.

Some of these situations are outside your control. But many are not. If you are considering a Roth conversion in your early 60s, modeling the downstream impact on your Medicare premiums is an important part of the analysis. A little forward planning can prevent a significant and avoidable increase in lifetime costs.

Every Situation Is Different

Social Security touches almost every part of a retirement plan, and the right approach looks different for every person. Nearly everyone is eligible for it, which means these questions come up constantly in our practice.If you are getting close to making a Social Security decision and want to work through it with someone, we would love to hear from you. Reach out to the team at EverPar to set up a foundation meeting.

Month: June 2026

The $3,000 PSO Healthcare Exclusion: What Retired Officers Need to Know