Open Season creates opportunities for tax savings

Friday - 12/2/2011, 1:04pm EST

Ed Zurndorfer, registered employees benefits consultant

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By Michael O'Connell
Web Editor
Federal News Radio

The failure of the Congressional supercommittee to reach an agreement means there is major uncertainty for reforming the tax code. That means tax rates, tax deductions and tax credits are all in limbo.

But there are things that federal employees can do to plan for their 2011 and 2012 taxes, especially now that it's still open season to choose health plans.

"Federal employees have to choose a health insurance plan for 2012," said Ed Zurndorfer, a registered employees benefits consultant. He spoke to the Federal Drive with Tom Temin and Amy Morris on Friday. "If they are satisfied with their current plan, they don't have to change anything." Employees that wish to change their plan have until Dec. 12 to do so.

So, how does health insurance figure into tax savings?

"Federal employees pay 28 percent of the total premiums for their heath insurance and those premiums come out of their paycheck on a pretax basis called premium conversion," Zurndorfer said. "So, all employees are getting an instant tax break by having their health insurance premiums deducted before they take their taxes out of their paycheck in order to pay the premiums."

However, some employees may have excessive out-of-pocket medical expenses, even with health coverage. These employees might be able to deduct medical expenses for 2012, provided they itemize their taxes. In order to make that deduction, the total medical expenses have to exceed 7.5 percent of their adjusted gross income.

"Unfortunately, with the cost of medical care, it doesn't take much for some people to exceed that 7.5 percent floor," he said.

It's important for feds who fall into this category to note that if they have premium conversion, the premium cannot be deducted — unless they waive the premium conversion.

"If an employee is thinking about 2012 and they expect to pay a lot out of pocket for their medical, dental, vision expenses, they may want to elect to get out of the so-called premium conversion and have their premiums taken out of their paycheck on a post-tax basis," Zurndorfer said.

The annual Open Season for premium conversion coincides with the FEHB Open Season. That election has to be done during the current Open Season for their 2012 taxes.

The government does offer a separate dental and vision insurance, with the premiums deducted on a pretax basis. Zurndorfer doesn't recommend using those unless the employee anticipates major dental or vision expenses in the coming year.

Information about premium conversions from the Office of Personnel Management.

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