US House Passes Retirement Bill that would Keep First Responder Disability Compensation Tax-Free
CLEAA is a proud member of the National Associations of Police Organizations. In a victory for NAPO, the House passed the Securing a Strong Retirement Act (H.R. 2954), sponsored by House Ways and Means Committee Chair Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX), by 415-5 vote on March 29. The Securing a Strong Retirement Act is bipartisan legislation that aims to help Americans successfully save for a secure retirement. Importantly, this bill includes the language of NAPO priority legislation, the Putting First Responder First Act. This provision would codify existing IRS regulations making service-connected disability compensation exempt from Federal income taxes. NAPO has been working with Committee staff to move the Putting Our First Responders First Act and applauds its passage in the House as part of the Securing a Strong Retirement Act. We thank Chairman Neal and Ranking Member Brady for their support.
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 or being audited for taking advantage of the tax exemption. By codifying the Revenue Ruling, this provision of the Securing a Strong Retirement Act would clarify the ruling and help ensure first responders’ injury-related compensation is tax-exempt. This is most important for the service-related disability compensation that is determined by reference to an individual’s age, length of service, or contributions. Service-related disability compensation that is structure like a worker’s compensation benefit (i.e., the benefit is equal to two-thirds of an individual’s salary and not based on age, length of service, or contributions) is already considered tax-free under law.
NAPO also supports making the tax-exempt status of this compensation permanent through retirement. We continue to work with the Senate Finance Committee to either pass S. 1618, Senator Steve Daines’ (R-MT) Putting First Responders First Act, or include language in its version of a broad retirement bill that provides perpetual tax relief to those who were disabled while serving their country and communities.
