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Frequently Asked Questions Insurance

Premium Conversion

  • No. Whether you participate in CSRS or FERS, your retirement benefit is based upon your gross salary
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  • All eligible federal employees who participate in the FEHB Program are participants in the premium conversion plan. You may choose between allotting part of your salary to your employer who will use that allotment to provide a pre-tax benefit or receive your full salary in cash (paying for your FEHB premiums with after-tax dollars).
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  • By choosing to waive participation in premium conversion, you lose the opportunity to take advantage of the tax savings that it provides. Please see the example below (please note savings vary by location since state and local tax savings usually exist in addition to Federal tax savings):

    Self Only Self and Family Yearly FEHB premium: $700.00 $1,600.00 Federal income tax savings $196.00 $448.00 FICA tax savings (7.65%) $53.55 $122.40 Annual Savings $249.55 $570.40

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  • The quickest way to determine the amount of money you will save yearly is simply to calculate (separately or combined) the tax rate multiplied by the total amount of health insurance premiums. These examples show the savings for a typical employee in the 28% tax bracket:

    Self Only Self and Family Yearly FEHB premium: $700.00 $1,600.00 Federal income tax savings $196.00 $448.00 FICA tax savings (7.65%) $53.55 $122.40 Annual Savings $249.55 $570.40

    These examples do not include savings on state and local taxes.

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  • Your participation in premium conversion ends on the day you terminate from Federal employment. The amount you prepaid from salary must be refunded to you, and that refund becomes taxable income.
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  • You may choose to receive the benefit (pre-tax payment of FEHB contributions), or cash (receive your normal salary and make FEHB contributions after tax).
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  • The annual Open Season for premium conversion coincides with the FEHB Open Season, which is held each year from the Monday of the second full workweek in November through the Monday of the second full workweek in December.
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  • Under OPM's premium conversion plan, the qualifying life events (QLEs) that may allow you to change your premium conversion election are:

    • Changes in entitlement to Medicare or Medicaid for you, your spouse or dependent
      • Your spouse or dependent first becomes eligible for coverage under Medicare or Medicaid
      • You, your spouse or dependent loses entitlement to Medicare or Medicaid
    • Employment Status
      • Change in your employment status or that of your spouse or dependent from either full-time to part-time, or the reverse
      • Start of your spouse's employment
      • Your spouse or dependent is employed in a position that offers health insurance
      • Start or end of an unpaid leave of absence by you, your spouse or your dependent
    • Other
      • Significant change in the cost or conditions of your spouse's health care coverage related to your spouse's employment that affects you.
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  • No, only deductions for FEHB premiums may be deducted pre-tax at this time.
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  • Taxes are avoided, not deferred. Premium conversion eliminates the taxes you pay on the part of your salary that pays your FEHB premiums. Since your taxable income is lower with premium conversion, the amount you owe in taxes is reduced. You won't owe the IRS money in April because of premium conversion.
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