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How Section 218 Agreements Affect State and Local Government Employers
How Social Security and Medicare laws affect government entities
What’s a Qualified Retirement Plan for social security purposes?
Section 218 and Retirement System Interaction
Transcript PDF

Welcome to Section 218 and Retirement System Interaction, the last of a four part video series.

This video series helps government entity employers correct or prevent payroll errors related to their unique participation in Social Security and/or Medicare coverage. This information isn’t official guidance.

Federal Section 218 laws are consistent while each state has different coverage under those laws. Contact your state’s Section 218 administrator to understand your state specific coverage. In our videos we explained Section 218 of the Social Security Act, Mandatory Medicare, Social Security laws, and qualified retirement systems.

Now you’ll learn how to withhold Social Security and Medicare taxes whether there is a qualified retirement system or plan in place for government employees.

1: Determine whether the employee’s position is covered by a Section 218 Agreement.

If “yes,” the employee is covered for Social Security and Medicare under the Agreement, unless an exclusion applies for that position.

If “no,” proceed to the next step. Remember you can find out about the Section 218 Agreement by contacting your state Social Security administrator.

2: If the employee’s position isn’t covered under a Section 218 Agreement, determine whether the employee is a member of a qualified public retirement system for Social Security purposes. If “no,” the employee is subject to mandatory Social Security and Medicare, unless an exclusion applies. If “yes “the employee is a member of a qualified public retirement system and is exempt from mandatory Social Security.

Medicare is mandatory for public employees hired or rehired after March 31, 1986, regardless of membership in a public retirement system. Proceed to the next step to determine Medicare coverage for any employee hired prior to April 1, 1986.

3: Determine whether a Section 218 Agreement provides Medicare-only coverage for employees hired prior to April 1, 1986.

If “yes,” the employee is covered for Medicare only. If “no,” proceed to the next step.

4: Determine whether the Medicare continuing employment exception applies to the employee, meaning the employee was hired before March 31, 1986, and has continued in employment without any breaks in service.

An example of a break in service is if someone retires then returns to work in any capacity.

Retirement is an example of a break in service. If “yes,” the employee is exempt from mandatory Medicare.

If “no,” the employee is subject to mandatory Medicare, unless an exclusion applies.

The 4-part videos of this series introduce a complex area of employment tax law.

For more in-depth coverage of this topic, we recommend you review IRS Publication 963, The Federal-State Reference Guide at IRS.gov.

We appreciate you viewing this series and we encourage each government entity to become more familiar with this important aspect of your employment tax responsibilities. Thanks for watching!