FEHB Tax Savings for Federal Employees

There are major tax advantages for health insurance. The “employer share” of health insurance—paid by agencies for employees and by OPM for retirees— is part of employee compensation but by law is exempted from being counted as taxable income. For Federal employees and retirees, the non-taxable premium share paid by employing agencies and OPM averages about $6,000 for self-only enrollments, about $13,000 for self plus one, and about $14,000 for families. The tax laws also allow employers to make the "employee share" of the premium tax-free to employees, and to set up tax advantaged Flexible Spending Accounts for employees. The average tax-sheltered employee share of premium for Federal self-only enrollees is about $2,000 and for families about $5,000. In total, employees in family plans shelter about $19,000 in employee compensation for health insurance from Federal, State, and local income taxes, as well as from OASDI taxes. This saves employees a tidy sum, about $6,000 per family on average. By law, only the tax benefits for the employer share, but not the retiree share, are available to retirees in either the public or private sectors. But retirees in Medicare Parts A and B also get over $9,000 per person of untaxed insurance benefits on top of their FEHB savings, for a total tax shelter of about $22,000 for a retired couple.