Last week several lawmakers renewed their fight to pass legislation allowing civilian and military retirees, and active duty military personnel, to pay health care premiums with pre-tax dollars.
During a press conference last Thursday Sen. John Warner, R-Va., Reps. Tom Davis, R-Va., and Jo Ann Davis, R-Va., joined advocates for retiree and the military in promoting legislation that would amend the Internal Revenue Code and convert the health insurance premiums of retirees and active duty military employees to pre-tax income.
"For a little more than two years, all active civilian federal employees have been able to pay their health insurance premiums with pre-tax money," said Rep. Jo Ann Davis, R-Va., chairwoman of the House Government Reform Subcommittee on Civil Service and Agency Organization. "This saves the typical employee about $400 a year. With this legislation, we will bring premium conversion to the rest of the federal family-all retirees as well as active duty military personnel."
Rep. Tom Davis, chairman of the House Government Reform Committee, introduced H.R. 1231, which is similar to legislation he sponsored in the last two congressional sessions. Warner shepherded companion bills in the Senate.
According to Charles Fallis, president of the National Association of Retired Federal Employees, the bulk of the cost of living adjustments federal and military retirees received during the last six years were eroded by double-digit increases in health insurance premiums.
"More than just retirees should care about this legislation," Fallis said. "Imagine the shock of a newly retired federal employee when he receives his first annuity check and learns that the federal government no longer uses pre-tax earnings to pay his share of health insurance premiums. That average annual tax savings of $434 he received while working ended when he retired from the government-just when it's needed the most."
Flexible Spending
Federal employees are one step closer to having flexible spending accounts. The Office of Personnel Management awarded a contract for the program to Louisville, Ky.-based SHPS Inc. on March 14.
"Fundamentally, federal employees-like all educated consumers-are in the best position to determine how healthcare dollars should be spent for themselves and their families," OPM Director Kay Coles James said when the contract was awarded. "FSAs empower them to do so."
The new benefit will reduce employees' tax bills by letting them put pre-tax dollars aside to pay for medical expenses and child and dependent care. As much as $3,000 can be set aside to pay for insurance deductibles and co-payments, eyeglasses or contact lenses, dental work done and laser eye surgery. Up to $5,000 per family can be socked away to cover dependent care costs for children up to 13-years-old, or an adult who qualifies as a dependent based on IRS regulations. According to OPM, the maximum contributions for this year may be prorated depending on when the program officially begins.
"Used wisely, flexible spending accounts are effective financial management tools that can stretch the disposable incomes of account holders and ensure that funds are available, when needed, to pay for out-of-pocket medical expenses or the dependent care costs of a child or parent," James said. "I am confident that federal employees will benefit from participation in the FSA program, and they, in turn, can be sure that their accounts are being professionally managed by a company experienced with participant reimbursement accounts."
To estimate how your tax bill might be affected, use this calculator. For more information about covered expenses, see IRS Publication 502 (for medical expenses) and IRS Publication 503 (for dependent care expenses).
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