Beginning with the first pay period that begins on or after October 1, 2000, most Federal employees will see an increase in their take-home pay. Why? The increase is due to the implementation of premium conversion for Federal employees.

It is a tax benefit! It allows you to allot a portion of your pay to your employer who uses that amount to pay your contribution for your Federal Employees Health Benefits (FEHB) coverage. This allotment is made on a pre-tax basis (just like employee contributions to the Thrift Savings Plan) which means that the money is not subject to Federal income tax, Medicare, or Social Security taxes. Therefore, the allotment reduces your taxable income so less tax is withheld.

Your paycheck will be larger! Here's an example. Your bi-weekly gross pay is $1,000 and your FEHB premium is $100. Currently, your take-home pay, after all deductions have been taken out, is $431.50. However, with premium conversion, your FEHB premium is deducted from your gross pay of $1,000, thus reducing your taxable income to $900. Therefore, your take-home pay is $472.15 - an increase of $44.99! An easy calculation would be to multiply your FEHB premium by your tax bracket which would give you an estimate of your potential increase in take-home pay.

Participation in premium conversion will not affect your health benefits, nor your base pay for retirement, life insurance, and the Thrift Savings Plan. It is automatic unless you choose to waive participation. While premium conversion is a great benefit for the majority of employees, a very small number of individuals may benefit by waiving premium conversion. Additional information is available on the Office of Personnel Management's website, www.opm.gov/insure/health/pretaxfehb/index.htm, or by contacting your servicing personnel office.