Section 402(l): Exclusion for Retired Public Safety Officers

If you searched for the Section 106(l) tax code provision for retired public safety officers, the benefit you’re looking for actually sits at 26 U.S.C. § 402(l). It lets an eligible retired public safety officer exclude up to $3,000 per year of health, accident, or qualified long-term care insurance premiums from taxable pension income, and thanks to the SECURE 2.0 Act you can now pay those premiums yourself instead of routing them through your plan administrator.

The Right Statute Is 402(l)

Section 106 of the Internal Revenue Code covers employer-provided health coverage for active employees. The retiree exclusion you’re looking for is a different provision entirely: 26 U.S.C. § 402(l), which governs distributions from governmental retirement plans used by retired public safety officers to pay insurance premiums.¹ The mix-up is common enough that it’s worth naming up front, because searching or filing under the wrong section will send you to rules that don’t apply to your situation.

Who Counts as an Eligible Retired Public Safety Officer

The statute defines an eligible retired public safety officer as someone who separated from service with the employer that maintains the retirement plan, and who left either because of disability or because they reached normal retirement age.¹ Retiring early for personal reasons, without a disability, generally puts you outside the exclusion. Normal retirement age is whatever your plan defines it as, which for many public safety plans is tied to years of service rather than a specific birthday.

The definition of “public safety officer” itself comes from the Omnibus Crime Control and Safe Streets Act and covers law enforcement officers, firefighters, and chaplains serving a public agency. It also reaches members of rescue squads and ambulance crews authorized or licensed to provide emergency medical services, along with certain FEMA employees and state or local emergency management workers performing hazardous duties during a declared disaster.² The common thread is service to a public agency in an official capacity.

Which Retirement Plans the Distribution Must Come From

The plan has to be a governmental plan maintained by a federal, state, or local government employer. Qualifying types include 401(a) defined benefit pensions, 403(a) annuity plans, 403(b) tax-sheltered annuities, and 457(b) deferred compensation plans.¹ A private-sector 401(k), or an IRA you rolled funds into on your own, does not qualify. The money must come from the plan maintained by the same employer you served as a public safety officer.

What Premiums Qualify and the $3,000 Cap

The exclusion applies to premiums for accident and health insurance or qualified long-term care insurance, and coverage can be for you, your spouse, or your dependents. You can exclude the actual premiums paid or $3,000, whichever is less.¹ Pay $4,500 in premiums and you still exclude only $3,000. Pay $2,200 and your exclusion caps at $2,200.

Qualifying premiums are broader than many retirees expect. Medical, dental, and vision insurance premiums count. So do Medicare Part B, Part D, Medicare Advantage, and Medigap premiums. Premiums paid to a self-insured plan are eligible too.

You cannot double-dip. Any amount excluded under Section 402(l) cannot also be claimed as an itemized medical expense on Schedule A.³ Premiums above the $3,000 you exclude may still be deductible as medical expenses if you itemize and clear the 7.5% of AGI threshold.

SECURE 2.0 Removed the Direct-Payment Requirement

Before December 29, 2022, the exclusion worked only if your plan administrator sent premium payments directly to the insurer. Retirees whose plans didn’t offer that arrangement often lost the benefit entirely.

SECURE 2.0 Section 328 changed that. You can now receive your pension distribution, pay the insurance premiums yourself, and still claim the exclusion.⁴ This matters most for retirees on Medicare, since those premiums typically come out of Social Security or are paid directly by the retiree rather than through a pension plan.

How To Claim the Exclusion on Form 1040

Your retirement plan sends a Form 1099-R showing the gross distribution in Box 1 and the taxable amount in Box 2a.⁵ Box 2a will not reflect your PSO exclusion. The plan reports the full taxable amount and leaves the adjustment to you.

On Form 1040 or 1040-SR, put the total distribution from Box 1 on line 5a. On line 5b, enter the taxable amount after subtracting qualifying premiums up to the $3,000 cap. Then check box 2 on line 5c to indicate “PSO.”³ That checkbox tells the IRS why line 5b is lower than the 1099-R. Skip it and expect a letter asking you to explain.

If you report a disability pension on line 1h instead, include only the taxable amount there and write “PSO” along with the excluded dollar amount on the dotted line next to it.⁶

Records To Keep

Hold onto the 1099-R. If your plan pays premiums directly to the insurer, ask for a statement showing exactly how much was paid during the tax year. If you pay premiums yourself under the post-SECURE 2.0 rules, keep receipts, bank statements, or payment confirmations with amounts and dates. Keep copies of policies or enrollment documents that show the coverage qualifies as health, accident, or long-term care insurance.

The IRS generally expects tax records to be kept for at least three years from the filing date.⁷ Because line 5b won’t match your 1099-R, documentation matters more here than with most tax benefits. If the IRS asks, the PSO checkbox alone won’t be enough.

1
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees’ Trust
2
Office of the Law Revision Counsel. 34 USC 10284 – Definitions
3
Internal Revenue Service. Publication 575 (2025), Pension and Annuity Income
4
Internal Revenue Service. Publication 575 – Pension and Annuity Income
5
Internal Revenue Service. Instructions for Forms 1099-R and 5498
6
Internal Revenue Service. 1040 (2025) Instructions
7
Internal Revenue Service. How Long Should I Keep Records