Tax deduction for health insurance taken out of state pension

[kjpliny]

I've been searching for an answer to this everywhere but can't seem to find what I'm looking for. My wife will be retiring from teaching in July and the cost of family health insurance will be close to 12k per year out of pocket. This is in NY. We currently take the standard deduction and don't itemize on the 1040 form but we do itemize on the state return. I'm trying to figure out if insurance payments taken from the monthly pension check are pre or post tax. Does anyone have any experience with this particular deduction? Our out of pocket medical and insurance costs will exceed 7.5% of AGI in retirement.

I know when you're working for an employer that health insurance payments are taken out of your paycheck on a pre-tax basis and aren't deductible.

 

[Gumby]

My retiree package included healthcare. There is a premium associated with the plan we chose, which is deducted from my pension every month. I just looked and it has been a post tax deduction for the past 4.5 years. Which means that it would be deductible on our taxes if over 7.5% of our income (we always use the standard deduction)

Perhaps you can ask the NY teachers retirement system about it to be sure.

 

[teej1985]

My retiree package included healthcare. There is a premium associated with the plan we chose, which is deducted from my pension every month. I just looked and it has been a post tax deduction for the past 4.5 years. Which means that it would be deductible on our taxes if over 7.5% of our income (we always use the standard deduction)

Perhaps you can ask the NY teachers retirement system about it to be sure.

If you happened to be self employed, you could take the self employment health insurance deduction. AFAIK, that's the only way to make it deductible other htan if it's past the threshold for Schedule A.

 

[RE2Boys]

Many years ago, there was a change in the taxablity of employee fringe benefits. Employees were allowed to treat the health insurance premiums as a pre-tax benefit. At the time I was receiving a pension and was told that this change did not apply to pension benefits as they were not part of section 125 plan. Thus I had to use after tax income to pay for health insurance which aslo made the premiums deductible as an itemized deduction. I have been receiving a pension for 23 years now. The change in cafeteria plans was in March 2000. See: https://www.federalregister.gov/documents/2000/03/23/00-5817/tax-treatment-of-cafeteria-plans

 

[cathy63]

It's post-tax.

Do look up the list of deductible medical expenses so you can track everything. A lot of people forget to include things like mileage and dental costs; also long term care premiums if you have those.

 

[teej1985]

It's post-tax.

Do look up the list of deductible medical expenses so you can track everything. A lot of people forget to include things like mileage and dental costs; also long term care premiums if you have those.

The IRS publishes the amount of LTC premiums that you can deduct. It' varies by age and changes every year.

 

[badatmath]

My state allows some sort of LTC deduction too even if no itemize on fed.

Glad you brought this up though as I can probably start using it in 2024. But then again not if I keep living on savings. Blah.

 

[target2019]

On the 1099 form in TurboTax, scroll down until you see Insurance. There is a line for Amount of insurance premiums deductible on Schedule A.

That amount flows to Schedule A - From Form 1099-R.

That should flow, along with other non-used amounts you enter, to State Deduction for Medical Expenses (Total nonreimbursed federal medical expenses).

I verified this in my 2022 Federal/State (NJ) Tax Filing.

You do have to confirm that amounts are flowing correctly across tax forms.

 

[kjpliny]

Thanks all! Looks like anything over the 7.5% limit will be deductible, but we will check with NYSTRS once the pension checks start coming.

I finally retired in November after 31 years with the company. This was part of a RIF, so I'll be receiving 6 months of severance through June and then my wife will retire in July and we'll be off to the next chapter.

She may continue working for another year since she currently has a good gig teaching remotely from home part time, but it's up to her if she wants to continue that position. It's a different school district from the one she is retiring from and won't figure into her FAS. She will also be below the income limit for teachers who want to continue working for the state after retiring.

Still have to figure out a Roth conversion strategy which will be a bit limited due to the annual pension payouts. We may wait until after we move to another state with no income taxes. While NY allows up to $20k each in tax free retirement disbursements from qualified accounts, it doesn't kick in until age 59.5. Decisions, decisions....