Federal tax requirements generally apply to public employers in the same way that they do to private employers. However,
there are some differences arising from the unique history of laws governing Social Security and Medicare coverage
for state and local government employees. Special provisions apply to the application of these taxes as well as certain
withholding requirements.
Historical Overview
Social Security taxes were first collected in 1937. The funding mechanism for the Social Security program was officially
established in the Internal Revenue Code (IRC) as the Federal Insurance Contributions Act (FICA). Under the original
Social Security Act of 1935, state and local government employees were excluded from Social Security coverage because
of unresolved legal questions about the federal government’s authority to impose taxes on state and local governments
and their employees.
Beginning in 1951, states could enter into voluntary agreements with the federal government to provide Social Security
coverage to public employees. These arrangements are called “Section 218 Agreements” because they are authorized
by Section 218 of the Social Security Act. Originally, government entities filed with the SSA, but since 1987, the IRS has
been responsible for collecting these taxes from governmental employers. All 50 states, Puerto Rico, the Virgin Islands
and approximately 60 interstate instrumentalities have Section 218 Agreements with SSA, providing varying degrees of
coverage for employees in the state.
Social Security coverage of government employees varies greatly from state to state. In 22 states, at least 90% of state
and local government employees work in positions covered by Social Security. By contrast, in Alaska, California, Colorado,
Louisiana, Massachusetts, Ohio, Nevada and Texas, less than half of state and local government employees are covered.
As of 2014, 28.1% of the state and local government workforce, or 6.4 million state and local government employees were
not covered by Social Security.
The largest portion of uncovered government employees work at the local level. Most uncovered local government public
employees are police officers, firefighters and teachers.
The following chart includes the major historical developments since state and local employees first became eligible for
Social Security coverage in 1951.
1
|
Key Dates |
| January 1, 1951 |
Beginning this date, states could voluntarily elect Social Security coverage for public
employees not covered under a public retirement system (FICA replacement plan) by entering
into a Section 218 Agreement with SSA. Prior to this date, there was no mandatory Social
Security coverage. |
| January 1, 1955 |
Beginning this date, states could extend Social Security coverage to employees (other than
police officers and frefghters) covered under a public retirement system. |
| July 1, 1966 |
Beginning this date, employees covered for Social Security under a Section 218 Agreement
are automatically covered for Medicare. |
| April 20, 1983 |
Beginning this date, coverage under a Section 218 Agreement cannot be terminated unless
the governmental entity is legally dissolved. |
| April 1, 1986 |
State and local government employees hired on or after this date, not already covered, are
mandatorily covered for Medicare, unless the position is specifcally excluded by law. For
state and local government employees hired before April 1, 1986, Medicare coverage may be
elected under a Section 218 Agreement. |
| January 1, 1987 |
Beginning this date, State Social Security Administrators are no longer responsible for
collecting Social Security contributions from public employers or for verifying and depositing
the taxes owed by public employers. After 1986, public employers pay FICA taxes directly to
the IRS in the same manner as do private employers. |
| July 2, 1991 |
Beginning this date, state and local government employees became subject to mandatory
Social Security and Medicare coverage, unless they are (1) members of a qualifying public
retirement system, or (2) covered under a Section 218 Agreement. |
| August 15, 1994 |
The Social Security Independence and Program Improvements Act of 1994 established the
SSA as an independent agency, effective March 31, 1995. This Act also increased the FICA
exclusion amount for election workers from $100 to any amount less than the threshold
amount mandated by law in a calendar year. (To verify the current year amount, see the
SSA website.) States were authorized to amend their Section 218 Agreements to increase
the FICA exclusion amount for election workers to the statutorily mandated threshold. This
Act also amended Section 218 to allow all states the option to extend Social Security and
Medicare coverage to police officers and frefghters who participate in a public retirement
system. (Under previous law, only 23 states were authorized to do so.) |
October 21,
1998 |
Public Law 105-277 provided a 3-month period for states to modify their Section 218
Agreements to exclude from coverage services performed by students. This provision was
effective July 1, 2000, for states that exercised the option to take this exclusion. |
| March 2, 2004 |
Public Law 108-203 requires public employers to furnish Form SSA-1945 to public employees
hired after December 31, 2004, informing them that they are earning retirement benefts not
covered by Social Security; also closed the Government Pension Offset (GPO) loophole,
effective April 1, 2004. |
2
Key Public Employer Responsibilities
The following are the major responsibilities that apply to all public employers, regardless of their Social Security coverage
and public retirement system:
Properly classify workers as either independent contractors or employees.
Solicit and collect valid taxpayer identification numbers from all employees and payees.
Determine which employees are exempt from Social Security and/or Medicare taxes.
Withhold, report and pay appropriate Social Security and Medicare taxes, or Medicare-only taxes, for each
employee.
Obtain clarifications of laws, regulations and other appropriate information from State Social Security
Administrators, IRS and SSA.
Considerations for Social Security Coverage (Section 218 and Mandatory)
Social Security coverage can vary widely within a state or even a local area. Do not make an assumption about Section
218 Agreement coverage for an entity and whether it complies with all applicable laws merely because of the status of a
similar entity, either in the same or a different state. For Section 218 Agreement coverage questions, contact your State
Social Security Administrator (see www.NCSSSA.org). Related information can also be found at SSA State and Local
Government Employers.
In general, to determine the correct coverage for a group of employees, a government employer must address the
following questions:
If employees are covered by a Section 218 Agreement:
When did the state enter into a Section 218 Agreement to elect Social Security coverage for a
particular political subdivision?
What optional exclusions and what coverage groups were listed in that Agreement or later
modification?
Does the political subdivision have more than one modification?
Did the state or political subdivision terminate voluntary Social Security coverage in its entirety or for
any coverage groups before April 20, 1983?
Has the state elected to provide Medicare-only coverage for a particular entity?
If employees are not covered by a Section 218 Agreement:
Does the state or political subdivision have any employees who were hired prior to April 1, 1986, and
who are exempt from mandatory Medicare?
Does the state or political subdivision have a public retirement system?* If so, employees who are
qualified participants in the public retirement system are not subject to mandatory Social Security
coverage that began July 2, 1991.
*Throughout this publication, the term “public retirement system” (also known as FICA replacement plan) refers to a retirement system
administered by a state, political subdivision or instrumentality thereof that meets the requirements of IRC Section 3121(b)(7)(F). See Revenue
Procedure 91-40. For Section 218 purposes, it is irrelevant whether the retirement system meets the minimum benefit standards for a qualified
plan under the Employee Retirement Income Security Act (ERISA). See Chapter 6.
Note : In some situations, legal challenges occur that are resolved in the federal courts. It’s even possible that, while
cases are pending, the application of the laws can vary and be applied by the IRS and SSA solely in one state (if a case
has been heard and decided in a federal district court) or in states only in one federal circuit (if a case has been heard
and decided at the federal circuit court level). It’s important in these situations to be aware of which federal district or
circuit court has jurisdiction over federal laws that apply to each state. To locate a map and contact information for
federal courts, see www.uscourts.gov/court_locator .
3
Steps to Determine Social Security and Medicare Coverage of State and Local
Government Employees
State and local government employees may be covered for Social Security and Medicare under either a Section 218
Agreement, which applies to anyone holding the affected position, or under mandatory coverage, which is based on the
individual employee’s situation.
If the position is covered under a Section 218 Agreement, any employee occupying that position is covered. This is the
first coverage consideration for a governmental employer. If, however, the position is not covered under a Section 218
Agreement, then the employer must determine whether mandatory FICA coverage applies. To do this, the employer must
first determine whether the employee is deemed to be a member of a public retirement system (FICA replacement plan).
This is a critical consideration in determining whether and how a Section 218 Agreement or mandatory FICA coverage
applies to an employee.
The following steps outline how a public employer should determine whether Social Security and Medicare coverage or
Medicare-only coverage applies to an employee.
Step 1 : Determine whether the employee’s position is covered by a Section 218 Agreement (Chapter 5, Social
Security and Medicare Coverage).* 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.
Step 2 : If the employee’s position is not covered under a Section 218 Agreement, determine whether the employee
is a member of a public retirement system (Chapter 6, Social Security and Public Retirement Systems). 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 public retirement system), the employee 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 before April 1, 1986.
Step 3 : Determine whether a Section 218 Agreement provides Medicare only coverage for employees hired before
April 1, 1986. If yes, the employee is covered for Medicare only. If no, proceed to the next step.
Step 4 : Determine whether the Medicare continuing employment exception applies to the employee (Chapter 5).
If yes, the employee is exempt from mandatory Medicare. If no, the employee is subject to mandatory
Medicare, unless an exclusion applies.
- State enabling legislation can have an effect on positions and entities covered by the particular state’s Section 218 Agreement. Consult the
appropriate state’s enabling legislation to determine which positions are eligible for coverage under that state’s Section 218 Agreement. For a list
of state enabling statutes, see the Appendix of this publication.
4
The following flowchart illustrates these steps:
SOCIAL SECURITY AND MEDICARE COVERAGE OF
STATE AND LOCAL GOVERNMENT EMPLOYEES
This chart is a guide only and is not a substitute for discussing complex Section 218 Agreement coverage situations with
your State Social Security Administrator or FICA taxation issues with your IRS agent.
(1) Section 218 required and optional exclusions (see Chapter 5)
(2) Exclusions from mandatory Social Security and Medicare (see Chapter 5)
(3) Medicare continuing employment exception (see Chapter 5)
5
SSA, IRS, State Social Security Administrators and Public Employer Social
Security and Medicare Tax Responsibilities
The Social Security Administration (SSA) is responsible for administering the Social Security Act, including the
interpretation of individual Section 218 Agreements. SSA also administers benefits and maintains individual earnings
records. See Chapter 7, Social Security Administration.
The Internal Revenue Service (IRS) is responsible for administering the Internal Revenue Code, which includes the
Federal Insurance Contributions Act (FICA), advising employers of their responsibilities, collecting taxes and working with
SSA and State Social Security Administrators on Social Security coverage and related tax issues. See Chapter 8 , Internal
Revenue Service.
The State Social Security Administrator (SSSA) is the designated official legally appointed to act for the state in
negotiations with the SSA. This official acts for the state with respect to the initial Section 218 Agreement and
modifications, the performance of the state’s responsibilities under the agreement, and in all state dealings on the
administration of the agreement. Each state’s Section 218 Agreement and Social Security Regulation 404.1204 provide a
legal obligation for each state to designate an official. In many states the actual day-to-day responsibilities are delegated to
the staff of the designated state official. See Chapter 9, State Social Security Administrators.
Public employers are responsible for:
Properly classifying workers as either independent contractors or employees
Soliciting and collecting valid taxpayer identification numbers from all employees and payees
Determining which employees are exempt from Social Security and/or Medicare taxes
Withholding, reporting and paying appropriate Social Security and Medicare taxes, or Medicare-only taxes for
each employee
Obtaining clarifications of laws, regulations and other information from State Social Security Administrators, IRS
and SSA
Where to Direct Questions
The IRS, SSA and State Social Security Administrator have different responsibilities and areas of authority in dealing with
issues on Social Security coverage, taxation and reporting.
The following indicates the primary point of contact for many common questions.
Topics for the IRS:
Federal income tax
Worker classification (employee or independent contractor)
Collection of Social Security and/or Medicare tax
Completion and filing of Forms W-2, W-3, 1099 and 1096
Employment tax returns (Forms 941, 944)
Definition of public retirement system (FICA replacement plan)
Whether an employee is covered by mandatory Social Security
Whether certain payments are subject to Social Security and/or Medicare tax
Questions about employer identification numbers
Topics for the SSA:
Social Security benefits
Section 218 coverage
6
Individual earnings records and quarters of coverage
Verification of Section 218 terms
Form W-2 records
Problems with Social Security number
Topics for the SSSA:
Existence and/or terms of a Section 218 Agreement
Modifications to the Section 218 Agreement
Treatment of a specific position under a Section 218 Agreement
Other issues involving interpretation of state law
Frequently Asked Questions
1. What is a Section 218 Agreement?
A Section 218 Agreement is a written, voluntary agreement between one of the 50 states (or Puerto
Rico, the Virgin Islands or an interstate instrumentality) and the SSA under Section 218 of the Social
Security Act. This agreement provides Social Security and Medicare, or Medicare-only coverage
for designated groups of state and local government employees. The term refers to the original
agreement and all subsequent modifications. These agreements can cover services of employees
who are covered by a public retirement system as well as those who are not. To determine whether
your entity is covered under a Section 218 Agreement, or can execute one, contact your State
Social Security Administrator. See the list of State Administrators at NCSSSA.org. [SSA/STATE]
2. How may a Section 218 Agreement affect employees who are qualifying members of a public
retirement system?
An agreement may provide Social Security and Medicare coverage for employees already covered
by a public retirement system (or FICA replacement plan). This may include:
a. Employees covered by a public retirement system who elect coverage under a referendum. The Social
Security and Medicare coverage applies in addition to retirement system coverage.
b. Employees performing services that are excluded from mandatory Social Security coverage provisions,
but are only optionally excluded under Section 218 Agreements, such as student services, and services
of election workers who earn less than the threshold amount.
c. Election workers in some state Section 218 Agreements that establish a dollar threshold for FICA
coverage that’s lower than the federal statutory requirement.
d. Employees hired before April 1, 1986, who meet the continuing employment Medicare exception. [STATE]
3. Why might a Section 218 Agreement be modified?
Modifications to Section 218 Agreements are necessary to include additional coverage groups, to
cover additional services in a group already covered (services previously optionally excluded), to
cover ineligibles, to cover employees changing to the “Yes” group in a divided retirement system,
to cover previously terminated groups, or to identify political subdivisions joining a covered public
retirement system. See Chapter 5. [STATE]
4. I was told by the State Social Security Administrator that my town is covered for Social
Security under the state’s Section 218 Agreement and the coverage cannot be terminated. Is
this true?
Yes. By law after April 20, 1983, coverage under a Section 218 Agreement cannot be terminated.
Beginning July 2, 1991, any state and local government employees not covered for Social Security
under a Section 218 Agreement who are not qualified members of a public retirement system (FICA
replacement plan), are covered under mandatory Social Security. [STATE/SSA]
5. Are Indian tribal government employers eligible to enter into Section 218 Agreements?
No, Indian tribal governments are not considered states or subdivisions of states for Section 218
purposes. See IRC Section 7871. However, the Tribal Social Security Fairness Act of 2018 (PDF)
provides information about Indian tribes wishing to offer Social Security coverage to tribal council
7
members per Section 218A of the Social Security Act. For more information about Social Security
coverage, Medicare and tribal governments, see the IRS Indian Tribal Governments website. [IRS]
6. I have a question about Social Security and Medicare coverage requirements for employees
of my city. Whom do I contact?
The State Social Security Administrator should always be your first contact on any questions
about coverage under Social Security or Medicare. Consult SSA if you need additional assistance
on coverage. Direct questions about whether specific services are subject to mandatory Social
Security and Medicare taxes to the IRS. [STATE]
7. What is the responsibility of State Social Security Administrators for non-Section 218
entities?
Under Section 218 of the Act, the primary legal responsibility State Social Security Administrators
have is for Section 218 entities. However, the Administrator’s responsibilities to entities not covered
under the state’s Section 218 Agreement (non-Section 218 entities) vary from state to state. Some
State Administrators may not interact with non-Section 218 entities, while in other states the State
Administrator may perform monitoring, quasi-regulatory and enforcement functions for them. If a
non-Section 218 entity needs information about coverage under an agreement, contact the State
Social Security Administrator. [STATE]
8. If an entity has a Section 218 Agreement in effect, and joins the state’s public employee
retirement system, does Section 218 Agreement coverage continue?
After April 20, 1983, a Section 218 Agreement cannot be terminated for any reason as long as that
entity exists. The addition of a retirement system does not affect employee coverage under the
Section 218 Agreement. [SSA]
8
n Chapter 2
Federal tax requirements generally apply to public employers in the same way that they do to private employers. However, there are some differences arising from the unique history of laws governing Social Security and Medicare coverage for state and local government employees. Special provisions apply to the application of these taxes as well as certain withholding requirements.
Historical Overview
Social Security taxes were first collected in 1937. The funding mechanism for the Social Security program was officially established in the Internal Revenue Code (IRC) as the Federal Insurance Contributions Act (FICA). Under the original Social Security Act of 1935, state and local government employees were excluded from Social Security coverage because of unresolved legal questions about the federal government’s authority to impose taxes on state and local governments and their employees.
Beginning in 1951, states could enter into voluntary agreements with the federal government to provide Social Security coverage to public employees. These arrangements are called “Section 218 Agreements” because they are authorized by Section 218 of the Social Security Act. Originally, government entities filed with the SSA, but since 1987, the IRS has been responsible for collecting these taxes from governmental employers. All 50 states, Puerto Rico, the Virgin Islands and approximately 60 interstate instrumentalities have Section 218 Agreements with SSA, providing varying degrees of coverage for employees in the state.
Social Security coverage of government employees varies greatly from state to state. In 22 states, at least 90% of state and local government employees work in positions covered by Social Security. By contrast, in Alaska, California, Colorado, Louisiana, Massachusetts, Ohio, Nevada and Texas, less than half of state and local government employees are covered. As of 2014, 28.1% of the state and local government workforce, or 6.4 million state and local government employees were not covered by Social Security.
The largest portion of uncovered government employees work at the local level. Most uncovered local government public employees are police officers, firefighters and teachers.
The following chart includes the major historical developments since state and local employees first became eligible for Social Security coverage in 1951.
1
employees not covered under a public retirement system (FICA replacement plan) by entering
into a Section 218 Agreement with SSA. Prior to this date, there was no mandatory Social
Security coverage.
police officers and frefghters) covered under a public retirement system.
are automatically covered for Medicare.
the governmental entity is legally dissolved.
mandatorily covered for Medicare, unless the position is specifcally excluded by law. For
state and local government employees hired before April 1, 1986, Medicare coverage may be
elected under a Section 218 Agreement.
collecting Social Security contributions from public employers or for verifying and depositing
the taxes owed by public employers. After 1986, public employers pay FICA taxes directly to
the IRS in the same manner as do private employers.
Social Security and Medicare coverage, unless they are (1) members of a qualifying public
retirement system, or (2) covered under a Section 218 Agreement.
SSA as an independent agency, effective March 31, 1995. This Act also increased the FICA
exclusion amount for election workers from $100 to any amount less than the threshold
amount mandated by law in a calendar year. (To verify the current year amount, see the
SSA website.) States were authorized to amend their Section 218 Agreements to increase
the FICA exclusion amount for election workers to the statutorily mandated threshold. This
Act also amended Section 218 to allow all states the option to extend Social Security and
Medicare coverage to police officers and frefghters who participate in a public retirement
system. (Under previous law, only 23 states were authorized to do so.)
1998
Agreements to exclude from coverage services performed by students. This provision was
effective July 1, 2000, for states that exercised the option to take this exclusion.
hired after December 31, 2004, informing them that they are earning retirement benefts not
covered by Social Security; also closed the Government Pension Offset (GPO) loophole,
effective April 1, 2004.
2
Key Public Employer Responsibilities
The following are the major responsibilities that apply to all public employers, regardless of their Social Security coverage and public retirement system:
Properly classify workers as either independent contractors or employees.
Solicit and collect valid taxpayer identification numbers from all employees and payees.
Determine which employees are exempt from Social Security and/or Medicare taxes.
Withhold, report and pay appropriate Social Security and Medicare taxes, or Medicare-only taxes, for each employee.
Obtain clarifications of laws, regulations and other appropriate information from State Social Security Administrators, IRS and SSA.
Considerations for Social Security Coverage (Section 218 and Mandatory)
Social Security coverage can vary widely within a state or even a local area. Do not make an assumption about Section 218 Agreement coverage for an entity and whether it complies with all applicable laws merely because of the status of a similar entity, either in the same or a different state. For Section 218 Agreement coverage questions, contact your State Social Security Administrator (see www.NCSSSA.org). Related information can also be found at SSA State and Local Government Employers.
In general, to determine the correct coverage for a group of employees, a government employer must address the following questions:
If employees are covered by a Section 218 Agreement:
When did the state enter into a Section 218 Agreement to elect Social Security coverage for a particular political subdivision?
What optional exclusions and what coverage groups were listed in that Agreement or later modification?
Does the political subdivision have more than one modification?
Did the state or political subdivision terminate voluntary Social Security coverage in its entirety or for any coverage groups before April 20, 1983?
Has the state elected to provide Medicare-only coverage for a particular entity?
If employees are not covered by a Section 218 Agreement:
Does the state or political subdivision have any employees who were hired prior to April 1, 1986, and who are exempt from mandatory Medicare?
Does the state or political subdivision have a public retirement system?* If so, employees who are qualified participants in the public retirement system are not subject to mandatory Social Security coverage that began July 2, 1991.
*Throughout this publication, the term “public retirement system” (also known as FICA replacement plan) refers to a retirement system administered by a state, political subdivision or instrumentality thereof that meets the requirements of IRC Section 3121(b)(7)(F). See Revenue Procedure 91-40. For Section 218 purposes, it is irrelevant whether the retirement system meets the minimum benefit standards for a qualified plan under the Employee Retirement Income Security Act (ERISA). See Chapter 6.
Note : In some situations, legal challenges occur that are resolved in the federal courts. It’s even possible that, while cases are pending, the application of the laws can vary and be applied by the IRS and SSA solely in one state (if a case has been heard and decided in a federal district court) or in states only in one federal circuit (if a case has been heard and decided at the federal circuit court level). It’s important in these situations to be aware of which federal district or circuit court has jurisdiction over federal laws that apply to each state. To locate a map and contact information for federal courts, see www.uscourts.gov/court_locator .
3
Steps to Determine Social Security and Medicare Coverage of State and Local Government Employees
State and local government employees may be covered for Social Security and Medicare under either a Section 218 Agreement, which applies to anyone holding the affected position, or under mandatory coverage, which is based on the individual employee’s situation.
If the position is covered under a Section 218 Agreement, any employee occupying that position is covered. This is the first coverage consideration for a governmental employer. If, however, the position is not covered under a Section 218 Agreement, then the employer must determine whether mandatory FICA coverage applies. To do this, the employer must first determine whether the employee is deemed to be a member of a public retirement system (FICA replacement plan). This is a critical consideration in determining whether and how a Section 218 Agreement or mandatory FICA coverage applies to an employee.
The following steps outline how a public employer should determine whether Social Security and Medicare coverage or Medicare-only coverage applies to an employee.
Step 1 : Determine whether the employee’s position is covered by a Section 218 Agreement (Chapter 5, Social Security and Medicare Coverage).* 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.
Step 2 : If the employee’s position is not covered under a Section 218 Agreement, determine whether the employee is a member of a public retirement system (Chapter 6, Social Security and Public Retirement Systems). 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 public retirement system), the employee 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 before April 1, 1986.
Step 3 : Determine whether a Section 218 Agreement provides Medicare only coverage for employees hired before April 1, 1986. If yes, the employee is covered for Medicare only. If no, proceed to the next step.
Step 4 : Determine whether the Medicare continuing employment exception applies to the employee (Chapter 5). If yes, the employee is exempt from mandatory Medicare. If no, the employee is subject to mandatory Medicare, unless an exclusion applies.
4
The following flowchart illustrates these steps:
SOCIAL SECURITY AND MEDICARE COVERAGE OF
STATE AND LOCAL GOVERNMENT EMPLOYEES
This chart is a guide only and is not a substitute for discussing complex Section 218 Agreement coverage situations with your State Social Security Administrator or FICA taxation issues with your IRS agent.
(1) Section 218 required and optional exclusions (see Chapter 5)
(2) Exclusions from mandatory Social Security and Medicare (see Chapter 5)
(3) Medicare continuing employment exception (see Chapter 5)
5
SSA, IRS, State Social Security Administrators and Public Employer Social Security and Medicare Tax Responsibilities
The Social Security Administration (SSA) is responsible for administering the Social Security Act, including the interpretation of individual Section 218 Agreements. SSA also administers benefits and maintains individual earnings records. See Chapter 7, Social Security Administration.
The Internal Revenue Service (IRS) is responsible for administering the Internal Revenue Code, which includes the Federal Insurance Contributions Act (FICA), advising employers of their responsibilities, collecting taxes and working with SSA and State Social Security Administrators on Social Security coverage and related tax issues. See Chapter 8 , Internal Revenue Service.
The State Social Security Administrator (SSSA) is the designated official legally appointed to act for the state in negotiations with the SSA. This official acts for the state with respect to the initial Section 218 Agreement and modifications, the performance of the state’s responsibilities under the agreement, and in all state dealings on the administration of the agreement. Each state’s Section 218 Agreement and Social Security Regulation 404.1204 provide a legal obligation for each state to designate an official. In many states the actual day-to-day responsibilities are delegated to the staff of the designated state official. See Chapter 9, State Social Security Administrators.
Public employers are responsible for:
Properly classifying workers as either independent contractors or employees
Soliciting and collecting valid taxpayer identification numbers from all employees and payees
Determining which employees are exempt from Social Security and/or Medicare taxes
Withholding, reporting and paying appropriate Social Security and Medicare taxes, or Medicare-only taxes for each employee
Obtaining clarifications of laws, regulations and other information from State Social Security Administrators, IRS and SSA
Where to Direct Questions
The IRS, SSA and State Social Security Administrator have different responsibilities and areas of authority in dealing with issues on Social Security coverage, taxation and reporting.
The following indicates the primary point of contact for many common questions.
Topics for the IRS:
Federal income tax
Worker classification (employee or independent contractor)
Collection of Social Security and/or Medicare tax
Completion and filing of Forms W-2, W-3, 1099 and 1096
Employment tax returns (Forms 941, 944)
Definition of public retirement system (FICA replacement plan)
Whether an employee is covered by mandatory Social Security
Whether certain payments are subject to Social Security and/or Medicare tax
Questions about employer identification numbers
Topics for the SSA:
Social Security benefits
Section 218 coverage
6
Individual earnings records and quarters of coverage
Verification of Section 218 terms
Form W-2 records
Problems with Social Security number
Topics for the SSSA:
Existence and/or terms of a Section 218 Agreement
Modifications to the Section 218 Agreement
Treatment of a specific position under a Section 218 Agreement
Other issues involving interpretation of state law
Frequently Asked Questions
1. What is a Section 218 Agreement? A Section 218 Agreement is a written, voluntary agreement between one of the 50 states (or Puerto Rico, the Virgin Islands or an interstate instrumentality) and the SSA under Section 218 of the Social Security Act. This agreement provides Social Security and Medicare, or Medicare-only coverage for designated groups of state and local government employees. The term refers to the original agreement and all subsequent modifications. These agreements can cover services of employees who are covered by a public retirement system as well as those who are not. To determine whether your entity is covered under a Section 218 Agreement, or can execute one, contact your State Social Security Administrator. See the list of State Administrators at NCSSSA.org. [SSA/STATE]
2. How may a Section 218 Agreement affect employees who are qualifying members of a public retirement system? An agreement may provide Social Security and Medicare coverage for employees already covered by a public retirement system (or FICA replacement plan). This may include:
a. Employees covered by a public retirement system who elect coverage under a referendum. The Social
Security and Medicare coverage applies in addition to retirement system coverage.
b. Employees performing services that are excluded from mandatory Social Security coverage provisions,
but are only optionally excluded under Section 218 Agreements, such as student services, and services of election workers who earn less than the threshold amount.
c. Election workers in some state Section 218 Agreements that establish a dollar threshold for FICA
coverage that’s lower than the federal statutory requirement.
d. Employees hired before April 1, 1986, who meet the continuing employment Medicare exception. [STATE]
3. Why might a Section 218 Agreement be modified? Modifications to Section 218 Agreements are necessary to include additional coverage groups, to cover additional services in a group already covered (services previously optionally excluded), to cover ineligibles, to cover employees changing to the “Yes” group in a divided retirement system, to cover previously terminated groups, or to identify political subdivisions joining a covered public retirement system. See Chapter 5. [STATE]
4. I was told by the State Social Security Administrator that my town is covered for Social Security under the state’s Section 218 Agreement and the coverage cannot be terminated. Is this true? Yes. By law after April 20, 1983, coverage under a Section 218 Agreement cannot be terminated. Beginning July 2, 1991, any state and local government employees not covered for Social Security under a Section 218 Agreement who are not qualified members of a public retirement system (FICA replacement plan), are covered under mandatory Social Security. [STATE/SSA]
5. Are Indian tribal government employers eligible to enter into Section 218 Agreements? No, Indian tribal governments are not considered states or subdivisions of states for Section 218 purposes. See IRC Section 7871. However, the Tribal Social Security Fairness Act of 2018 (PDF) provides information about Indian tribes wishing to offer Social Security coverage to tribal council
7
members per Section 218A of the Social Security Act. For more information about Social Security coverage, Medicare and tribal governments, see the IRS Indian Tribal Governments website. [IRS]
6. I have a question about Social Security and Medicare coverage requirements for employees of my city. Whom do I contact? The State Social Security Administrator should always be your first contact on any questions about coverage under Social Security or Medicare. Consult SSA if you need additional assistance on coverage. Direct questions about whether specific services are subject to mandatory Social Security and Medicare taxes to the IRS. [STATE]
7. What is the responsibility of State Social Security Administrators for non-Section 218 entities? Under Section 218 of the Act, the primary legal responsibility State Social Security Administrators have is for Section 218 entities. However, the Administrator’s responsibilities to entities not covered under the state’s Section 218 Agreement (non-Section 218 entities) vary from state to state. Some State Administrators may not interact with non-Section 218 entities, while in other states the State Administrator may perform monitoring, quasi-regulatory and enforcement functions for them. If a non-Section 218 entity needs information about coverage under an agreement, contact the State Social Security Administrator. [STATE]
8. If an entity has a Section 218 Agreement in effect, and joins the state’s public employee retirement system, does Section 218 Agreement coverage continue? After April 20, 1983, a Section 218 Agreement cannot be terminated for any reason as long as that entity exists. The addition of a retirement system does not affect employee coverage under the Section 218 Agreement. [SSA]
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