Civil Service 

Retirement 

System 

Federal Employees’ 

Group Life 

Insurance Program 

Federal Employees 

Health Benefits 

Program 

Federal Employees 

Retirement 

System 

Federal 

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: 02-311 Date: May 15, 2002 

Subject: CSRS Withholdings for Offset Employees who Participate in HB-PC

We have received inquiries from agency payroll officials regarding retirement withholdings for 

employees covered by CSRS-offset ("offset") who also participate in Health Benefits Premium 

Conversion (HB-PC). This letter provides guidance for the relatively rare scenario where 

employees’ pre-tax FEHB deductions exceed their basic pay in a pay period. 

Assume that Mark Marks is a “regular” offset employee, who participates in HB-PC. Mr. 

Marks’ total OASDI taxable wages have not yet reached the social security wage base. 

 Mr. Marks reported to work on Monday and worked 8 regular hours plus 6 hours of 

overtime. Mr. Marks then took sick leave which was converted to leave without pay for the 

remainder of the two-week pay period. Mr. Marks’ hourly rate of pay is $14 and his 

overtime rate of pay is $21 per hour. For this pay period, Mr. Marks was paid: 

Basic pay $112 

Overtime pay $126 

Pre-tax FEHB deduction $200 

As you can see, Mr. Marks’ pre-tax FEHB deduction has exceeded his basic pay for this 

pay period. 

In Benefits Administration Letter No. 02-304, we established a rule that agencies must deduct at 

the "full" CSRS withholding rate on the amount of basic pay used to pay the pre-tax FEHB 

deduction. This rule also applies when employees’ pre-tax FEHB deduction exceed their basic 

pay. Thus, when basic pay is less than the pre-tax FEHB premium deduction, agencies must 

withhold at the "full" CSRS withholding rate on the entire amount of basic pay. 
2

Mr. Marks’ basic pay [$112] is less than his pre-tax FEHB premium deduction [$220]. 

Thus, his agency must deduct at the full CSRS withholding rate [7.0 percent] on Mr. 

Marks’ entire basic pay for the pay period, as follows: 

CSRS withholdings: $112 x 7.0% = $7.84 

In pay periods where employees’ basic pay do not cover their FEHB premium deductions, any 

“non-basic pay” must be applied to the “shortfall.” The amount of “non-basic pay” applied to the 

pre-tax FEHB premium deduction is not subject to CSRS deductions because it is not basic pay. 

It is also not subject to OASDI withholdings because it is covered by the pre-tax FEHB premium 

deduction. 

$112 of Mr. Marks’ $200 pre-tax FEHB premium deduction is drawn from his basic 

pay. The remaining $88 [$200 - $112] is drawn from his overtime pay. This $88 is not 

subject to CSRS deductions because it is not basic pay. It is also not subject to OASDI 

withholdings because it is covered by Mr. Marks’ pre-tax FEHB premium deductions. 

The amount of wages that IS subject to OASDI withholdings is the difference between the total 

amount of “wages” paid in the pay period less the pre-tax FEHB premium deduction. 

 

Mr. Marks’ wages subject to OASDI withholdings is computed, as follows: 

Basic pay $112 

Overtime pay 126 

Total “wages” 238 

Less: pre-tax FEHB deduction 200 

Subject to OASDI 38 

Thus, Mr. Marks’s agency must deduct OASDI withholdings on $38, as follows: 

OASDI withholdings: $38 x 6.2% = $2.36 

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

finance@opm.gov, so we have a record of our communication. You may also phone us on (202) 

606-0606. 

 

 Robert A. Yuran, Chief 

 Financial Policy Staff 

 Retirement and Insurance Service