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: 02-304 Date: February 6, 2002 

Subject: CSRS Withholdings for CSRS-Offset Employees Who Are HB-PC Participants 

We have received many inquiries from agency payroll officials regarding the withholding of 

retirement contributions for employees who are covered by CSRS-offset (“offset”) and also 

participate in Health Benefits Premium Conversion (HB-PC). We understand that the guidance we 

provided to APOs may not have been comprehensive in this regard and believe that this letter 

clarifies our policy. 

The law requires that the percentage of basic pay withheld each pay period for the CSRS plus the 

percentage of basic pay withheld for OASDI must equal the “full” CSRS withholding rate. The 

implementation of HB-PC does not alter this fundamental rule. Thus, for offset employees, a 

total of 7.0, 7.5 or 8.0 percent of basic pay (depending upon the category of coverage) must be 

withheld each pay period for CSRS plus OASDI. 

Prior to the implementation of HB-PC, CSRS withholdings always reverted to the “full” rate 

when total basic pay for the calendar year reached the social security wage base (SSWB). For 

offset employees who participate in HB-PC, this is not the case. For these employees, CSRS 

withholdings must revert to the “full” rate when total OASDI wages for the calendar year reach 

the SSWB. Should CSRS withholding revert to the “full” rate when total basic pay for the 

calendar year reaches the SSWB, employees will experience combined CSRS/OASDI 

withholdings that exceed CSRS withholdings at the “full” rate for that pay period. 

While OASDI wages remain below the SSWB, several agency payroll offices (APOs) are 

applying the “reduced” CSRS withholding rate only to either basic pay or to OASDI wages. If 

withholdings are processed in this manner, CSRS will be under-withheld and the employee will 

be overpaid for the pay period. 

To meet the requirement that the percentage of basic pay withheld each pay period for the CSRS 

and OASDI equal the “full” CSRS withholding rate, therefore, APOs must adhere to the 

following rules for offset employees who participate in HB-PC: 
 

1. As long as the employee’s total OASDI wages for the calendar year have not exceeded the 

SSWB: 

Apply: To: 

“Reduced” CSRS withholding rate Basic pay less pre-tax FEHB deduction 

“Full” CSRS withholding rate Basic pay equal to pre-tax FEHB deduction 

2. When total OASDI wages (not basic pay) for the calendar year reach the SSWB, the CSRS 

withholding rate must revert to the “full” rate. 

We have concluded that as a result of the application of incorrect procedures at most agencies, 

OASDI withholdings are not impacted, the shortfall in CSRS withholdings is minor, and the 

affected population is not large. As a consequence, we will not require APOs to revise their 

withholding procedures prior to the beginning of tax year 2003 nor provide retroactive adjustments 

of CSRS remittances to OPM for tax years prior to 2003. Employees who do question the large 

combined CSRS/OASDI withholdings for the pay period during which their basic pay reaches the 

SSWB should be advised that it represents a “catch-up” for the under-withholding of CSRS 

deductions for prior pay periods and that their OASDI and other tax withholdings are unaffected. 

We have attached a hypothetical illustration that demonstrates the correct (and incorrect) 

procedures for the withholding of CSRS contributions for an offset employee who participates in 

HB-PC. 

If you have any questions about this letter, we would prefer that you email us at finance@opm.gov, 

so that we may have a record of them. You may also phone us on 

(202) 606-0606. 

Bob Yuran, Chief 

Financial Policy Staff 

Retirement and Insurance Service 

Attachment 
 

Hypothetical Illustration of Correct and Incorrect Procedures for Withholding of CSRS 

Contributions for Offset Employees Participating in HB-PC 

Mathew Dean is an offset employee who participates in HB-PC. He has basic pay of $4,000 per pay 

period and has a pre-tax deduction of $150 for FEHB premiums. 

Procedure A in the following table demonstrates the correct CSRS withholding for a pay period 

where total OASDI wages for the calendar year have not exceeded the SSWB ($80,400 in 2001). 

Procedures B and C provide samples of incorrect procedures. 

Procedure 

A 

(Correct) 

Procedure 

B 

(Incorrect) 

Procedure 

C 

(Incorrect) 

Basic pay 4,000.00 4,000.00 4,000.00 

FEHB deduction 150.00 150.00 150.00 

OASDI wages 3,850.00 3,850.00 3,850.00 

CSRS @7.0% 10.50 0.00 0.00 

CSRS @0.8% 30.80 32.00 30.80 

OASDI withholdings 238.70 238.70 238.70 

Total withholdings (CSRS plus OASDI) 280.00 270.70 269.50 

Total withholdings (% of basic pay) 7.00 6.77 6.74 

Procedure A is correct. The APO has applied the “full” (7.0%) withholding rate to Mathew’s pretax FEHB deduction and the “reduced” (0.8%) withholding rate to his basic pay less his FEHB 

deduction. By so doing, Mathew’s combined CSRS and OASDI withholdings are properly 7.0% 

of his basic pay. 

Procedure B is not correct. The APO has applied only the “reduced” (0.8%) withholding rate to 

Mathew’s basic pay. By so doing, Mathew’s combined CSRS and OASDI withholdings are less 

than 7.0% of his basic pay. The APO has under-withheld for CSRS and overpaid Mathew. 

Procedure C is also not correct. The APO has applied the 0.8% withholding rate to Mathew’s 

OASDI wages. By so doing, Mathew’s combined CSRS and OASDI withholdings are less than 

7.0% of his basic pay. The APO has under-withheld for CSRS and overpaid Mathew. 

The following two tables demonstrate correct and incorrect CSRS withholdings for the pay period 

during which total OASDI wages for the calendar year have reached the SSWB ($80,400 in 2001). 

The following table illustrates the INCORRECT procedure. Mathew’s CSRS withholdings have 

reverted to 7.0% when his total basic pay for the calendar year reached the SSWB. By so doing, 

Mathew’s combined CSRS and OASDI withholdings are 11.65% for the pay period. 
 

INCORRECT 

YTD 

(beginning 

of PP) 

Basic 

pay 

reaches 

SSWB 

OASDI 

wages 

reach 

SSWB 

After 

SSWB 

Total 

PP 

YTD 

(end of 

PP) 

Basic pay 80,000.00 400.00 3,150.00 450.00 4,000.00 84,000.00

FEHB deduction 3,000.00 150.00 0.00 0.00 150.00 3,150.00

OASDI wages 77,000.00 250.00 3,150.00 0.00 3,400.00 80,400.00

CSRS @7.0% 0.00 0.00 220.50 31.50 252.00 252.00

CSRS @0.8% 640.00 3.20 0.00 0.00 3.20 643.20

OASDI withholdings 4,774.00 15.50 195.30 0.00 210.80 4,984.80

Total W/H ($) 5,414.00 18.70 415.80 31.50 466.00 5,880.00

Total W/H (%) 6.77 4.68 13.2 7.0 11.65 7.00

The following table illustrates the CORRECT procedure. Mathew’s CSRS withholdings have 

reverted to 7.0% when his total OASDI wages for the calendar year reached the SSWB. By so 

doing, Mathew’s combined CSRS and OASDI withholdings are properly 7.0% of his basic pay 

for this pay period. 

CORRECT 

YTD 

(beginning 

of PP) 

OASDI 

wages 

reach 

SSWB 

After 

SSWB 

Total 

PP 

YTD 

(end of PP)

Basic pay a 80,000.00 d 3,550.00 450.00 4,000.00 84,000.00

FEHB deduction 3,000.00 d 150.00 0.00 150.00 3,150.00

OASDI wages b 77,000.00 c 3,400.00 0.00 3,400.00 80,400.00

CSRS @7.0% 210.00 e 10.50 g 31.50 42.00 252.00

CSRS @0.8% 616.00 f 27.20 0.00 27.20 643.20

OASDI withholdings 4,774.00 210.80 0.00 210.80 4,984.80

Total withholdings ($) 5,600.00 248.50 31.50 280.00 5,880.00

Total withholdings (%) 7.00 7.00 7.00 7.00 7.00
 

(a) YTD basic pay subject to CSRS withholdings at the beginning of the pay period is 

$80,000. 

(b) The basic pay that has already been subject to OASDI is $77,000. 

(c) Another $3,400 will be subject to OASDI withholding before OASDI wages reach the 

SSWB. 

(d) To reach the $3,400 subject to OASDI, Mathew must earn $3,550 in basic pay, because 

$150 of that basic pay is exempt from OASDI taxation under HB-PC. 

(e) Of the $3,550, the $150 in HB-PC is subject to the full 7% CSRS withholding because it 

is not subject to OASDI withholding [$150 x .07 = $10.50]. 

(f) The $3,400 is subject to the 0.8% CSRS withholding rate [$3,400 x .008 = $27.20]. 

(g) This leaves $450 [$4,000 - $3,550] that is not subject to OASDI withholding because 

the SSWB has been reached, but is, nonetheless, basic pay. Therefore, it is subject to the full 

7% CSRS withholding [$450 x .07 = $31.50].