Last Updated: November 11, 2026 Reading Time: 8 min

If you work for an executive-branch agency, your FEHB premium is already pre-tax unless you waived it, and you probably never chose that. OPM calls it premium conversion. In the two examples below, it saves about $400 to $3,700 a year in federal income tax and FICA, and it ends the day you retire.

Open Season (November 9 to December 14, 2026) is the annual window where you can both change plans and flip your premium conversion election without a qualifying life event. Here is what it is worth on two real 2027 plans, which other benefits are pre-tax, and what retirees can still deduct.

How Premium Conversion Works

Section 125 of the tax code lets an employer offer pre-tax benefits through a "cafeteria plan." OPM's version, FedFlex, covers FEHB, the health care FSA and the dependent care FSA. FEHB premium conversion started in October 2000.

Two parts of your premium are treated differently:

  • The government's share of your FEHB premium is never taxable income to you, working or retired.
  • Your share comes out of your pay before tax. Because the premium runs through a cafeteria plan, it's also outside the wages used for Social Security and Medicare tax, which is 7.65% (6.2% Social Security plus 1.45% Medicare). The 6.2% part stops above the Social Security wage base.

If you pay premiums by check (for example, during leave without pay), those payments are after-tax.

What It's Worth on a 2027 Plan

We took two 2027 employee shares from OPM's rate chart, multiplied by 26 pay periods, and applied each federal income tax bracket plus 7.65% FICA. State tax is left out because it varies; in most states you save some of that too.

2027 plan (employee share) Annual premium Saved at 12% Saved at 22% Saved at 24%
BCBS Standard, Self Plus One ($449.89 every two weeks) $11,697.14 $2,298.49 $3,468.20 $3,702.14
GEHA HDHP, Self Only ($81.62 every two weeks) $2,122.12 $417.00 $629.21 $671.65

How the BCBS row works: $449.89 × 26 = $11,697.14. At 22%, income tax saved is $2,573.37, and FICA saved is $894.83, for $3,468.20. Each figure assumes a FERS employee earning under the Social Security wage base and does not model the Additional Medicare Tax.

The bigger your premium, the more premium conversion is worth. It also means a premium increase costs you less than its sticker price while you are working, and the full price once you retire.

Should You Ever Waive It?

OPM itself says waiving is rarely worth it. Its fact sheet mentions a slightly lower Social Security benefit, because pre-tax premiums lower your Social Security wages, and for FERS employees who owe no federal income tax, it says to look further at your own numbers.

What you give up is flexibility. Inside premium conversion you can drop to a smaller enrollment, swap a family member, or cancel only at Open Season or after a qualifying life event. Waivers can make those changes any time. Premium conversion does not restrict switching plans; it governs enrollment type and cancellation.

When you can change your election:

  • Waive: at Open Season (effective with the first pay period of the new year), when you first enroll, or within 60 days of a qualifying life event, with a change consistent with that event.
  • Rejoin: at Open Season, or within 60 days of a qualifying life event if you also make an FEHB coverage change consistent with that event.

Which Federal Benefits Are Pre-Tax

Benefit Working employee Annuitant
FEHB, your share Pre-tax (income tax and FICA) unless waived After tax
FEHB, government share Never taxable Never taxable
FEDVIP dental and vision Pre-tax After tax
Health care FSA Pre-tax, up to $3,400 for 2026 Not available
Dependent care FSA Pre-tax, up to $7,500 for 2026 ($3,750 married filing separately) Not available
FLTCIP long-term care After tax (federal law bars long-term care insurance from cafeteria plans) After tax
FEGLI life insurance Not on OPM's list of pre-tax FedFlex benefits After tax

Postal workers in the Postal Service Health Benefits program should check their own plan documents; this table covers FEHB.

Retirees: What You Can Still Deduct

Annuitants can't use premium conversion; premiums come out of a taxable annuity. If you are rehired after retiring, you get premium conversion back automatically. Survivor annuitants who work for the government have to ask for it.

Retirees have two other routes:

  • Itemized medical deduction. Itemizers can deduct medical costs, including premiums they paid with after-tax money, above 7.5% of AGI. The above-the-line deduction self-employed people get isn't available for annuity-paid FEHB premiums.
  • The $3,000 public safety officer exclusion. Eligible retired public safety officers, such as law enforcement officers and firefighters who retired on disability or at normal retirement age, can exclude up to $3,000 a year of annuity used for health or long-term care premiums, for themselves, a spouse and dependents. IRS Publication 721 says CSRS and FERS annuities qualify. No double dip: the excluded $3,000 can't also go on Schedule A.

Working employees cannot do both either. The IRS uses federal employees as its own example: pre-tax FEHB premiums can't also be deducted.

See It in Your Paycheck

Pick your GS grade, step and locality in the federal take-home pay calculator to see your net pay with FEHB taken out before tax. To compare 2027 premiums across plans before Open Season ends, use the FEHB calculator.

Frequently Asked Questions

Are FEHB premiums pre-tax?

For working federal employees, yes. If you're enrolled in FEHB as an executive-branch employee, you're in premium conversion automatically unless you filed a waiver, so your share of the premium comes out before federal income tax and Social Security and Medicare tax. Annuitants can't use premium conversion; their premiums come out of a taxable annuity.

Are FEHB premiums tax deductible for retirees?

Only as an itemized medical expense. Retirees who itemize can count FEHB premiums toward medical expenses, but only the part of total medical costs above 7.5% of AGI is deductible. Eligible retired public safety officers, such as law enforcement officers and firefighters, can instead exclude up to $3,000 a year of annuity used for health premiums.

Can I waive premium conversion?

Yes, at Open Season, when you first enroll, or within 60 days of a qualifying life event, with a change consistent with that event. An Open Season waiver starts with the first pay period of the new year. OPM says waiving is rarely worth it.

Does premium conversion lower my Social Security?

It may, a little. Pre-tax premiums are left out of your Social Security wages, and OPM says that may result in somewhat lower Social Security benefits. OPM says waiving is rarely worth it.

Are FEDVIP dental and vision premiums pre-tax?

Yes for working federal and postal employees. Retirees pay FEDVIP premiums after tax.

Is FEGLI life insurance pre-tax?

FEGLI is not on OPM's list of pre-tax FedFlex benefits, which covers FEHB, the health care FSA and the dependent care FSA.

Do I save state income tax too?

In most states, according to OPM. Check your state's rules, because OPM does not list which states differ.

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