FICA Replacement Plans and Government Employees

Before we discuss FICA Replacement Plans, it may be helpful to discuss the ways in which a government employer and their employees do participate in Social Security and/or Medicare.

 

What is a Government Employer for FICA?

A government employer (when serving as the “Common Law” employer), is responsible for the appropriate social security and/or Medicare coverage.  Such coverage of the Government entities’ current and/or future employees, under the Federal Insurance Contributions Act (FICA), social security and/or Medicare, is determined in three ways:

  1. Full FICA coverage, social security and Medicare, is extended through a voluntary plan and agreement through your State Social Security Administrator.  These agreements are commonly referred to as “Section 218” agreements. [Section 218 of the Social Security Act (Act)].
  2. For employment services performed after July 1, 1991, full FICA coverage, social security and Medicare, is a requirement for employees whose services are not covered under a Section 218 agreement or by a qualified, employer’s retirement system. This coverage is commonly referred to as “mandatory FICA”.
  3. Medicare only coverage is a requirement for political subdivision employees whose services are not covered for social security under a Section 218 agreement or under mandatory FICA, but who were hired after March 31, 1986.  This coverage constitutes Medicare qualified government employment.

First question on the flow chart: Is this position or service covered for Social Security and Medicare under a Section 218 Agreement?  If yes you withhold Social Security and Medicare, unless there is a position that is excluded within the Section 218 Agreement.

If the answer is No, then you have to ask the question “is the employee a qualified member of a public retirement system?’ (We will take a more in depth look at what a qualified member means later in this phone forum).  If the employee is not a qualified member of a public retirement system then you withhold Mandatory Social Security and Medicare, unless some exclusion applies.

 

Qualified member of a public retirement system

If the answer is yes the employee is a qualified member of a public retirement system, then you have to determine if the employee is in a position that is covered by a Section 218 Agreement that provides Medicare-only coverage for employees hired prior to April 1, 1986.  If the employee is a qualified member of a public retirement system and is covered for Medicare by a Section 218 Agreement then you would withhold Medicare for that employee unless an exclusion applies.  However you would not withhold Social Security in this instance.

If in this instance there is no Section 218 Agreement for Medicare-Only, then would the Medicare Continuing Employment exception apply?  If yes, then no Social Security or Medicare is withheld.  If the continuing employment exception does not apply, then you withhold Medicare only for all hires after March 31, 1986.