Federal Employee Benefits Protected against Taxation
Changes to a federal tax law now protect the federal employee benefits of a public safety officer who was disabled or killed in the line of duty. Congress unanimously approved the “Don’t Tax our Fallen Public Safety Heroes Act,” which was later signed by President Obama this summer. The purpose of the bill was to clean confusion in current tax law to ensure that families of public safety officers that died or suffered debilitating injury while on duty would not have to pay for benefits received.
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Section 1201 Benefits
This legislation addressed federal benefits paid out through Section 1201 of the Omnibus Crime Control and Safe Street Acts of 1928. This act made it possible for the families of fallen public safety officers to receive death and education benefits. These federal benefits apply to law enforcement officers, firefighters and other first responders who die or sustain disabling injuries while on duty.
Current benefit totals are just over $205,000 for deaths and injuries occurring after October of 2014. Additionally, educational benefits total a one-month sum of just over $1000. The legislation provides that the government cannot tax any money provided to surviving dependents of a public safety officer who died from an injury sustained with on duty. However, taxes may be applied if the money would have been payable even if the injury that resulted in death took place off the clock. This exclusion does not apply to disability benefits.
Workmen’s Compensation Exclusion and Death Benefits
Before the passage of this legislation, state based agencies used workmen’s compensation exclusions to rule that death benefits were not taxable. However, this required each employer to submit a private letter with the IRS to ensure that the beneficiaries are free from taxation on these benefits. This process often took weeks. The new legislation makes it clear that these benefits cannot be taxed, clearing up paperwork and time for employers and agencies.
Dave Reichert, a Republican from Washington, told house members that, “When a public safety officer has been catastrophically injured or killed in the line of duty, their families should not also have to deal with paying taxes on the benefits they received after that loved one has paid the ultimate price while protecting their fellow Americans. The sacrifices of our men and women who wear the badge keep us safe, and now we have the opportunity to help provide for those that they leave behind,” according to Lexology.
This act only applies to federal taxes, though most states are likely to follow suit as many follow federal tax law to compute state taxes.
A second act, the Public Safety Employees Retirement Act extends an exemption that currently allows state public safety employees to withdraw from their federal retirement plans without a 10 percent penalty, provided that are 50 years of age or older. This additional exemption only applies to law enforcement officers, firefighters, and air traffic controllers. Congress passed this bill last month and the president signed the bill into law, offering more flexibility for individuals who routinely put their life on the line in the name of federal employment.
