NAPO on the Hill: First Responder Tax Package

NAPO is working with Congressman Bill Pascrell (D-NJ) and staff for both House Ways and Means Committee Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) to put together a package of pro-law enforcement tax provisions to prioritize and move during National Police Week. The package would consist of the Supporting America’s First Responders Act (H.R. 5342), the Putting First Responders First Act (H.R. 2560 / S. 1278), and the Public Safety Retirees Healthcare Protection Act (H.R. 4897).

The Supporting America’s First Responders Act, sponsored by Congressman Pascrell, would reinstate above-the-line deductions for out-of-pocket costs for first responders relating to uniform purchases and maintenance as well as job-related training. Like many public servants, law enforcement officers serve our nation and our communities for modest wages and often have to pay for mandatory and necessary equipment and resources out-of-pocket.

Prior to the passage of the Tax Cuts and Jobs Act (H.R. 1) in 2017, law enforcement officers were able to offset these substantial costs by deducting them from their taxable income. The elimination of these itemized deductions put an unfair financial burden on officers, who give up so much to protect and serve our communities.

While the Supporting America’s First Responders Act passed the House as part of the Restoring Tax Fairness for States and Localities Act at the end of last year, we believe including it in a public safety-themed tax package is another way to ensure its passage into law.

The Putting First Responders First Act, sponsored by Senator Steve Daines (R-MT) and Congressman Ralph Norman (R-SC), would codify existing Internal Revenue Code regulations making service-connected disability compensation exempt from Federal income taxes. In 1985, the IRS clarified in the IRS Revenue Ruling 85-105 that service-connected disability compensation for first responders is tax-exempt. Unfortunately, many auditors and first responders are not aware of this tax benefit and the first responders, who gave up so much in the line of duty, end up paying the tax unnecessarily. By codifying the Revenue Ruling, the Putting Our First Responders First Act would clarify the ruling and help ensure first responders’ injury-related compensation is tax-exempt.

Importantly, this legislation makes the tax-exempt status of the compensation permanent. Currently, injury-related compensation becomes taxable once the first responder reaches their original retirement age, which places a large financial burden on officers who have been living on a limited income. Providing permanent tax relief for those who were disabled serving their country and communities is the right thing to do to honor their sacrifice.

Lastly, the Public Safety Retirees Healthcare Protection Act, sponsored by Congressman Dan Lipinski (D-IL), would increase the amount public safety retirees can take out of their pensions tax free to pay for health insurance premiums from $3,000 per year to $6,000 per year. A qualifying public safety officer is one who attained normal retirement age or retired due to a disability and has insurance premiums deducted from their retirement benefit. The money must go directly from the pension fund to the health or insurance company in order to get the tax-free benefit.

The HELPS Retirees provision of the Pension Protection Act of 2006 provided public safety officers, who often retire earlier than other occupations because of the physical demands and unique job hazards they face, with means to more affordable healthcare options. This provision is important as many law enforcement retirees lose their employer-provided health insurance and are years away from being Medicare-eligible, forcing them to spend their retirement money on health insurance premiums.

Unfortunately, health care costs have gone up dramatically since 2006 and the $3,000 per year permitted under the provision is no longer adequate to cover even half a year’s worth of health insurance premiums. The Public Safety Retirees Healthcare Protections Act would help preserve the retirement security and the health of those public servants who selflessly serve and protect our communities.

NAPO is working with all the sponsors of the included bills in support of this tax package, which will be a priority for us to move during National Police Week. We will keep our members up-to-date on its status as we move it forward.