What is "premium conversion?"
All employees in the Executive Branch who are participating in the FEHB and whose pay is issued by an Executive Branch agency are eligible to have their premiums paid with pretax dollars. This “premium conversion” arrangement results in reductions in federal income, Social Security and Medicare taxes. In many jurisdictions, state and local taxes will also be reduced.

On the other hand, federal retirement, thrift savings and life insurance benefits are not affected by participation in premium conversion. For example, it does not affect base salary for the purpose of determining “high 3” salary years for retirement benefits calculation.

Participation in premium conversion is automatic unless the employee waives it.
Retirees are not eligible for premium conversion except that certain retired public safety officers are eligible for a partial tax exclusion on health insurance premiums. Consult a tax adviser for guidance.

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