The federal Pension Protection Act (PPA) of 2006 was signed into law last year and became effective for the 2007 tax year. The PPA gives an “eligible retired public safety officer” the ability to claim a tax exclusion of up to $3,000 for amounts deducted from their OPERS retirement benefits for qualified health insurance premiums. The majority of OPERS retirees do not retire as public safety officers, so most are not eligible for this tax exclusion.

The PPA describes a “public safety officer” as an individual serving a public agency in an official capacity with or without compensation, as a law enforcement officer, firefighter, chaplain, or as a member of a rescue squad or ambulance crew. “Law enforcement officers” include individuals involved in crime and juvenile delinquency control or reduction, or enforcement of the criminal laws (including juvenile delinquency), including, but not limited to, police, corrections, probation, parole, and judicial officers. An “eligible retired public safety officer” is an individual who, by reason of disability or attainment of normal retirement date or age, is separated from service as a public safety officer with his or her former employer.

OPERS does not define the terms “public safety officer” and “eligible retired public safety officer”, so we cannot determine if you are eligible for inclusion in these groups. We encourage you to consult with a qualified tax advisor to determine if the PPA exclusion applies to you.

Qualified Health Insurance Premiums

Under the PPA, “qualified health insurance premiums” are premiums paid with deductions from an eligible retired public safety officer’s pension. They include accident or health insurance plans or a qualified long-term care insurance contract for the retiree, spouse and dependents. For OPERS retirees, that provider would be the Oklahoma State and Education Group Insurance Board (OSEEGIB) because it is the only health care provider for which we currently withhold premiums. If you have health insurance premiums deducted from your OPERS check, that amount will be indicated on your 1099R form.

Exclusion from Taxable Income

If you retired from OPERS as a public safety officer, the amount of qualified health insurance premiums for you, your spouse and your dependents deducted from your monthly benefit from OPERS, and paid directly to OSEEGIB, may be excluded from your gross income, up to $3,000 per year.

You may not exclude from your gross income any health insurance premiums that are not deducted from your check, such as premiums paid by you to a provider (including OSEEGIB). This is true even if some or all of those are reimbursed with the monthly insurance subsidy from OPERS. Amounts deducted from your benefit check that qualify for exclusion from your gross income under this provision may not be taken in account in computing the itemized medical expense deduction.

In summary, this exclusion only applies to you if you meet these requirements as defined by the PPA:

1) You must have separated from service or retired as a public safety officer and drawing an OPERS benefit;
2) Health premiums for you (and possibly your spouse and dependents) must be deducted from your retirement benefit by OPERS and paid to OSEEGIB.
3) You must have retired under normal or disability retirement as a public safety officer. Those who took “early” retirement do not qualify.

Again, most OPERS retirees will not qualify for this tax exclusion.

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