Tax-Exempt Insurance Premium for Certain Groups of Public Employees

The Insurance Code exempts from any state tax, regulatory fee or surcharge (including a premium or maintenance tax or fee) the life and accident and health premiums received from certain groups of public employees. Broadly speaking, the groups are:

  • state employees and retirees;
  • state college and university employees and retirees;
  • active public school employees;
  • retired public school employees;
  • employees of municipal, county or hospital districts in Texas where the group covered by the policy consists of a single nonprofit trust established to provide coverage; and
  • employees of the federal government.

The Employees Retirement System of Texas administers insurance benefits for state employees and retirees. The premiums received are exempt from tax by the Insurance Code, Chapter 1551 (PDF, 204KB), under the Texas Employees Group Benefits Act. Included in this Act are appointed and elected officers and employees of the state of Texas, employees of state institutions of higher education and retirees under the state’s Employee Retirement System. An “institution of higher education” is any public junior college or senior college or university, except those in the University of Texas System or the Texas A&M University System, which are covered by a separate act as explained below.

Employees and retirees of the University of Texas System or the Texas A&M University System obtain their insurance through those systems. The premiums received for coverage are exempt from tax by the Insurance Code, Chapter 1601 (PDF, 95KB), under the Uniform Insurance Benefits Act for Employees of the University of Texas System and the Texas A&M University System.

The premiums received for those who participate in the Teacher Retirement System of Texas (TRS) are exempt from tax under the Insurance Code, Chapter 1579 (PDF, 73KB), Texas School Employees Uniform Group Health Coverage. This program is referred to as “TRS-ActiveCare.” This group includes employees of school districts, regional education service centers and charter schools that open their records to inspection and audit relating to participation in the program. School districts with 500 or fewer employees are required to participate under this chapter unless the district was self-funded on Jan. 1, 2001; school districts having greater than 500 employees may elect to participate.

Insurance Code Chapter 1575 (PDF, 114KB) covers retirees of the TRS who are not eligible for coverage under either Chapter 1551 or Chapter 1601. Premiums or contributions on a policy, insurance contract, or agreement under this chapter are exempt from tax. This program is referred to as “TRS-Care””.

Under the Insurance Code, Chapter 1576 (PDF, 46KB), both active employees contributing to the TRS as well as TRS retirees (including spouses, surviving spouses, parents, grandparents, fathers-in-law and mothers-in-law) may purchase long-term care insurance at their own expense, the premiums for which are also exempt from tax. The premiums received from a single non-profit trust established for the benefit of certain municipal, county or hospital district employees are exempt under Insurance Code, Chapter 222 (PDF, 47KB), Section 222.002(c)(5). See the October 2011 Tax Policy News for more information.

Premiums received from the Employees Health Benefits Fund, which is administered by the Office of Personnel Management, for enrollees of the Federal Employees Health Benefit Plan are pre-empted from tax as well, under Section 8909, Title 5, United States Code.

*Originally published in the June edition of Tax Policy News a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1206.html

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