U.S. Office of Personnel Management - Ensuring the Federal Government has an effective civilian workforce

Administrative errors may occur in the processing of your election to participate or waive participation in premium conversion. However, if you participate in premium conversion IRS rules rather than FEHB rules apply. IRS rules allow for NO adjustments to taxable income as a result of the correction of such errors, and NO retroactive adjustments, even when it's clear that you are not at fault. In processing a correction, the actual amount of FEHB premiums deducted from your pay will be afforded pre-tax treatment.

Examples

Susan L. has $100 per pay period deducted from her salary for her contribution towards FEHB coverage.

Ms. L's employing agency mistakenly deducts $150 during the last pay period prior to the effective date of her participation in premium conversion. To correct the error, the agency deducts $50 for FEHB from Ms. Lee's pay in the following pay period, during which she has begun participating in premium conversion. Except for agency error, $100 would have been deducted from her pay. However, only $50 is treated on a pre-tax basis.

Ms. L's employing agency mistakenly makes no FEHB deduction during the last pay period prior to the effective date of her participation in premium conversion. To correct the error, the agency deducts $200 from Ms. L's pay in the following pay period, during which she has begun participating in premium conversion. Since the deduction for FEHB coverage is taken after she begins participation in premum conversion, $200 is afforded pre-tax treatment.

Ms. L's employing agency mistakenly does not process her participation in premium conversion. As a consequence, Ms. L's $100 FEHB deduction is not afforded pre-tax treatment. To correct the error, the agency changes Ms. L's premium conversion status to "participant" in the following pay period. If not for the error, Ms. L. would have had $200 deducted from her pay on a pre-tax basis. However, only $100 is eligible for pre-tax treatment.

As you can see, under these rules an error correction may result in a greater or lower tax benefit than would otherwise have occurred.