The new fiscal year is bringing a new financial benefit to federal employees who are enrolled in the federal health insurance program. Effective October 1, 2000, federal employees are getting a 'pretax benefit’ on their health insurance premiums.

According to Eleanor Ratcliff, USDA’s Benefits Officer, federal employees who are enrolled in the Federal Employees Health Benefits Program can use pretax dollars to pay their health insurance premiums.

“It’s a program called 'premium conversion’,” she explained. “It lets employees deduct their share of health insurance premiums from their taxable income--otherwise known as their gross pay--before those taxes are calculated.”

“So that reduces the federal tax bite, as well as most state and local taxes.”

Ratcliff added that this calculation is done automatically--and continues automatically unless waived--so employees don’t have to sign up for it or take action to initiate it in any way.

Marjorie Rawls, an employee relations specialist with the Office of Human Resources Management, emphasized that 'premium conversion’ does not affect the amount of the health insurance premium itself, and the federal government is still paying its share of those premiums, as provided by law. Likewise, it does not affect the amount of deductions for an employee’s federal retirement, Thrift Savings Plan, or life insurance.

She added that 'premium conversion’ will not affect the way that an employee’s payment for his/her health insurance premium is reflected on the employee’s Statement of Earnings and Leave. “The amount of the premium will be the same as it was prior to October 1,” she said. “But the net salary--your take-home income--will be slightly higher.”

She noted this 'pre-tax benefit’ is similar to how an employee’s Thrift Savings Plan (TSP) contributions are treated for tax purposes. In addition, many USDA employees at headquarters and field locations are participating in a 'transit incentive’ program, which authorizes monetary incentives to employees who use qualifying forms of public transportation to commute to and from their USDA workplace. One such form of transit incentive offers a similar 'shelter’ from taxes of a certain defined amount of an employee’s mass transit costs. The September 1999 USDA News carried a story describing those two similar 'pre-tax benefits’ to USDA employees.

Most USDA employees will first see this change in the salary payment that is reflected in their Statement of Earnings and Leave for Pay Period No. 21.

Rawls pointed out that this new 'pre-tax benefit’ is only for active federal employees. “This benefit does not extend to retired federal employees,” she said.

She noted that, for some employees who pay Social Security taxes--in other words, employees enrolled in the Federal Employees Retirement System, or FERS--this 'premium conversion’ benefit may actually result in lower Social Security benefits. In those situations, employees may wish to consider exercising the option to waive 'premium conversion.’

“But for most employees in that situation,” Rawls said, “sheltering tax dollars still offers greater monetary benefits to employees. Put another way, the small reduction in Social Security benefits is greatly outweighed by the much larger tax savings.”

“So those employees should think twice before waiving 'premium conversion’.”

“And,” she quipped, “if you’re not in the habit of opening your Statement of Earnings and Leave envelope as soon as you get it, you may want to jump right on your Statement for Pay Period Number 21--and calculate how much money is now going back into your pocket.”