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Home | FEHB - Health Benefits | FEHB Premium Conversion

FEHB Premium Conversion

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FEHB premium conversion is a tax benefit.  It allows you to allot a portion of your pay to your employer, who will in turn use that amount to pay your contribution for FEHB coverage. 

This allotment is made on a pre-tax basis, which means that the money is not subject to federal income, Medicare, or Social Security taxes, and in most cases, state and local taxes.  The allotment reduces your taxable income, so less tax is withheld, and your paycheck is larger.

Who is Eligible

You are eligible to have your FEHB premiums paid under the premium conversion plan when:

  • you are an employee of the Executive Branch of the Federal Government;
  • your  pay is issued by an Executive Branch agency; and 
  • you participate in the FEHB Program.  

If you are enrolled in the FEHB Program and are employed outside the Executive Branch, or your pay is not issued by an agency of the Executive Branch, you may be eligible if your employer agrees to offer participation in the plan.

If you are an employee paying both your and the Government's share of the premiums, the entire amount deducted from your pay qualifies for premium conversion.

Does Premium Conversion Apply Only to Employees?

Yes.  At the present time, annuitants and compensationers whose FEHB premiums are deducted from annuities and benefits are not eligible to participate in premium conversion. There are special rules for reemployed annuitants; see below.

Persons enrolled through Temporary Continuation of Coverage and Spouse Equity are not eligible for premium conversion.

Does Premium Conversion Apply to Reemployed Annuitants?

Yes, if you are reemployed in a position that conveys FEHB eligibility, you may participate in premium conversion.  See "Reemployed Annuitants" for more information.

How do I Enroll?

You are automatically enrolled in premium conversion starting with the first pay period that begins on or after October 1, 2000.

Once you participate in premium conversion, your participation continues automatically unless you elect not to participate.  Each year during FEHB Open Season you may decide whether or not to participate for the following year.

Can I Choose Not to Participate in Premium Conversion?

Yes, but you need to opt-out or waive participation in premium conversion. You should obtain, complete and return a waiver/election form to your employing office.  If your employing office receives that form before the beginning of the first pay period that begins on or after October 1, 2000, the waiver will be effective.

Who Should Not Participate?

Regardless of your marital status, and the number of dependents you have, if you:

  • pay no federal income tax, or
  • earn less than $6,400 per year
  • you should give serious consideration to waiving participation in premium conversion.

Can I Change My Premium Conversion Participation Status?

Yes, but your opportunities to do so are limited.  You may waive participation:

  • During Open Season.  The effective date of the change is the first day of the first pay period that begins in the following calendar year. 
  • When you make a change in FEHB enrollment that is on account of and consistent with a qualifying life event.
  • When you have a qualifying life event and the change is on account of and consistent with that event (even when you don't change your enrollment).  You have 60 days after the qualifying life event to file your change with your employing office.  The waiver is effective on the first day of the pay period following the date your employing office received your change request.

You may cancel your waiver and participate:

  • During Open Season.  The effective date of the change is the first day of the first pay period that begins in the following calendar year.
  • When you have a qualifying life event; the change in FEHB coverage is consistent with the qualifying life event; and you complete an election form to participate within 60 days from the qualifying life event.

Does Premium Conversion Affect My Other Federal Benefits?

No.  All federal retirement, thrift savings and life insurance benefits are based on gross salary and are not affected by participation in premium conversion.

What's the Impact of Premium Conversion on my Social Security Benefits?

Premium conversion may slightly reduce the Social Security benefit you will receive upon retirement. The extent of the impact depends on several factors:

  • The retirement system that you participate in;
  • Whether your salary exceeds the social Security wage base; and
  • The number of years left until your retirement.


If you are covered under CSRS, you are generally better off with premium conversion. Your tax savings are slightly less, since you don't pay social security taxes. However, a reduction in Social Security benefits is not an issue for you since Social Security is not a component of your Civil Service Retirement.

Even if you have Social Security coverage as a result of a non-Federal job, premium conversion would not change your Social Security benefit.

CSRS Offset

Under CSRS offset, your Social Security benefits would be slightly reduced, but your CSRS Offset benefits would be increased by almost the same amount. Participating in premium conversion is most likely a benefit to you.


Your Social Security benefits are calculated on your taxable earnings, so any reduction in your taxable income will affect your Social Security calculation

The small reduction in Social Security benefits is greatly outweighed by the much larger tax savings. Here is a simple formula you can use to estimate the difference in your Social Security benefit:

  • Take the number of years you will participate in premium conversion (from now until your estimated retirement) and divide by 35.
  • Multiply this by your current annual FEHB premium
  • Multiply the result of Step 2 by the marginal SSA rate (15% for most Federal employees)
  • The result is the annual loss of Social Security benefits.

(# of Years of Premium Conversion /35) X Annual FEHB Premium X marginal SSA rate = Annual Loss)


Antonio participates in FERS. He's had a full career of FICA contributions, with an ending salary (today) of $50,000 and projected retirement at age 66 in January 2016. His estimated Social Security benefit equals $1,414 per month.

He begins participating in premium conversion and reduces his taxable income by $2,000, the amount of his FEHB premium. By changing his salary to $48,000, his monthly Social Security benefit is now $1,403, an $11.00 per month difference in today's dollars.

15/35= .4286 X 2000 = 857 X .15 = 128/12 = 10.71 or 11
Compare that to the estimated $67 increase in take home pay per month.

·  How to Continue Your FEHB Health Benefits Coverage After Retirement
·  FEHB Benefits and Cost for Retirees and Annuitants
·  Eligibility for FEHB Health Benefits After Retirement
·  FEHB Program Features
·  Changing FEHB Enrollment During Open Season

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Read federal retirement articles written by federal benefits expert and Certified Financial Planner, Edward Zurndorfer

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