Civil Service

Retirement

System

Federal Employees’

Group Life

Insurance Program

Federal Employees

Health Benefits

Program

Federal Employees

Retirement

System

Long Term

Care Insurance

Program

United States

Office of 

Personnel Management

The Federal Government’s Human Resources Agency

Retirement and Insurance Service

Benefits Administration Letter

 

Number: 01-313 Date: March 30, 2001

Subject: Correction of Administrative Errors – Health Benefits Premium Conversion

We have received many inquiries from agencies about the impact on tax withholdings of incorrect 

FEHB deductions, when the affected employee is a participant in Health Benefits Premium Conversion 

(HB-PC). The four most common scenarios that have been offered can be classified as follows:

♦ An election to cancel FEHB enrollment that is not processed.

♦ An election to enroll in the FEHB enrollment that is not processed.

♦ An employee is incorrectly enrolled in a more-expensive plan.

♦ An employee is incorrectly enrolled in a less-expensive plan.

In this letter, we provide an illustration of each scenario, along with the probable corrective action. You 

will note that the effect of each corrective action on taxable income in the following scenarios is 

prospective.

In the following illustrations, for simplicity, Federal income taxes and FEHB contributions are the only 

withholdings from gross pay and the employee is a participant in HB-PC. Of course in reality, 

Medicare, Social Security for FERS and CSRS Offset, and state income taxes may also be affected. 

Pay Period 26 1 2 3

Begins 12/18/05 1/1/06 1/15/06 1/29/06

Ends 12/31/05 1/14/06 1/28/06 2/11/06

Pays 1/9/06 1/24/06 2/7/06 2/21/06
2

CANCELLATION OF FEHB ENROLLMENT NOT PROCESSED

Windy Crawford has gross pay of $2,000 and is enrolled in a FEHB plan with biweekly withholdings of 

$300. Ms. Crawford experiences a qualifying life event and submits a SF-2809 to cancel her FEHB 

enrollment, effective on the first day of pay period 26. Unfortunately, her action is not processed timely 

and the $300 IS deducted for pay period 26.

To correct this, Ms. Crawford's cancellation of her FEHB enrollment is made retroactive to pay 

period 26. In pay period 1, her payroll office "refunds" the $300 in FEHB deductions to Ms. Crawford, 

by including it in her gross pay.

Thus, Ms. Crawford's "gross-to-net" for pay periods 26 and 1 is:

Pay Period 26 Pay Period 1

Gross Pay 2,000 2,300

FEHB (pre-tax) 300 0

Pay subject to Federal taxes 1,700 2,300

Federal taxes withheld @20% 340 460

Net Pay 1,360 1,840

FEHB ENROLLMENT NOT PROCESSED

Kathy Dean has gross pay of $2,000. Ms. Dean submits a SF-2809 to enroll in a FEHB plan with 

biweekly deductions of $300, effective on the first day of pay period 2. Her enrollment action, however, 

is not processed timely and the $300 is not deducted from her pay until pay period 3.

To correct this, Ms. Dean's FEHB enrollment is made retroactive to pay period 2 and her payroll office 

deducts $600 [double] in pay period 3 on a pre-tax basis.

Thus, Ms. Dean's "gross-to-net" for pay periods 2 and 3 is:

Pay Period 2 Pay Period 3

Gross Pay 2,000 2,000

FEHB (pre-tax) 0 600

Pay subject to Federal taxes 2,000 1,400

Federal taxes withheld @ 20% 400 280

Net Pay 1,600 1,120

INCORRECT ENROLLMENT IN MORE EXPENSIVE FEHB PLAN

Martha Vasquez has gross pay of $2,000 and FEHB deductions of $300. During pay period 2, it is 

discovered that her agency mistakenly enrolled her in the wrong FEHB plan in pay period 1. The plan 

in which she should have been enrolled has biweekly premium withholdings of only $250.

To correct this, Ms. Vasquez's enrollment in the correct plan is made retroactive to pay period 1. Her 

payroll office "refunds" $50 to Ms. Vasquez in pay period 2, by including it in her gross pay.

Ms. Vasquez's "gross-to-net" for pay periods 1 and 2 is:
3

Pay Period 1 Pay Period 2

Gross Pay 2,000 2,050

FEHB (pre-tax) 300 250

Taxable income 1,700 1,800

Federal taxes withheld @20% 340 360

Net Pay 1,360 1,440

INCORRECT ENROLLMENT IN LESS EXPENSIVE PLAN

John Landers has gross pay of $3,000. During pay period 2, it is discovered that he was enrolled in the 

wrong FEHB plan in pay period 1. The plan in which he should have been enrolled has employee 

deductions of $500, rather than the $200 that has been deducted.

To correct this, Mr. Landers' enrollment in the correct plan is made retroactive to pay period 1. His 

payroll office deducts $800 in pay period 2 [the regular deduction of $500, plus the $300 “underwithholding”] on a pre-tax basis.

Mr. Landers' "gross-to-net for pay periods 1 and 2 is:

Pay Period 1 Pay Period 2

Gross Pay 3,000 3,000

FEHB (pre-tax) 200 800

Taxable income 2,800 2,200

Federal taxes withheld @20% 560 440

Net Pay 2,240 1,760

If you have any questions regarding this information, we would prefer that you email us at 

finance@opm.gov, so that we have a record of our communication. You may also phone us on 

(202) 606-0606. 

Robert A. Yuran, Chief

Financial Policy Staff