State and Local Government Employees Social Security and Medicare Coverage


State and local government employees may be covered for Social Security and Medicare either by mandatory coverage, or under a Section 218 Agreement between the state and the Social Security Administration. Under some circumstances, an employee may be excluded from Social Security or Medicare, or both.

Some employers may not properly apply the terms of coverage to their employees. This leads to incorrect reporting, including non-reporting or erroneous coverage. Once incorrect reporting occurs it will often continue until the Social Security Administration or the IRS become involved; typically, during claims processing or examinations and audits.

Social Security coverage can vary widely within a state or even a local area. Don't make an assumption about Section 218 coverage for an entity and whether it's in compliance with all applicable laws merely because of the status of a similar entity. For Section 218 coverage questions, contact your state Social Security Administrator (see For mandatory coverage questions, visit and the

This fact sheet provides a brief summary of the coverage rules for Social Security and Medicare. For more information, follow the links in the text.

Social Security Coverage

In addressing coverage for a specific employee, the first question you should ask is:

Is the employee covered by a Section 218 Agreement or a modification amending the Agreement?

Your State Social Security Administrator is responsible for determining whether a position occupied by a particular government employee is covered by a Section 218 Agreement. Contact that office if you are uncertain whether you have a Section 218 Agreement or have questions about coverage for particular positions. You can identify your State Social Security Administrator at the National Conference of State Administrators website (

If a Section 218 Agreement is in effect: 

Is the position (and those services performed) optionally excluded from coverage under the Section 218 Agreement/Modification?

A list of mandatory and optional exclusions is included in Chapter 5: “Social Security and Medicare Coverage” of Publication 963, Federal-State Reference GuidePDF.

The optional exclusions include:

  • Agricultural labor, but only those services that would be excluded if performed for a private sector employer,
  • All services in any class or classes of elective positions,

  • Services performed by election workers and election officials paid less than the calendar year threshold amount mandated by law; unless Section 218 agreement covers election workers.

  • Services in any class or classes of positions compensated solely by fees received directly from the public, by an individual who is treated by the entity as self-employed; unless Section 218 agreement covers these services.
  • All services in any class or classes of part-time positions,
  • Services performed by students enrolled and regularly attending classes at the school, college or university where they are working.

The effective date of coverage is the date specified in the Section 218 Agreement/Modification for coverage to begin.

Does mandatory Social Security coverage apply to the employee?

Full Social Security coverage (mandatory Social Security tax) was mandated beginning July 2, 1991, for state and local government employees who are not members of a qualifying public retirement system (FICA replacement plan) and who are not covered under a Section 218 Agreement, unless a specific exclusion applies under the law.  A list of specific exclusions is included in Chapter 5: “Social Security and Medicare Coverage” of Publication 963PDF.

Medicare Coverage

Coverage for hospital insurance (Medicare) tax is governed by rules that went into effect in 1986 and has been further clarified by subsequent revenue rulings.

State or local government employee hired or rehired after March 31, 1986: The employee is covered for Medicare unless a specific exclusion applies

State or local government employee hired before April 1, 1986: The employee is exempt from mandatory Medicare tax if the employee is a member of a qualifying public retirement system and all of the following requirements are met if:

  • The employee was performing regular and substantial services for remuneration for the state or political subdivision employer before April 1, 1986,
  • The employee  was a bona fide employee of that employer on March 31, 1986,
  • The employment relationship was not entered into for purpose of avoiding the Medicare tax, and
  • The employment relationship with that employer has been continuous since March 31, 1986.

For more information on the continuing employment exception, see Revenue Ruling 2003-46, Revenue Ruling 86-88, Revenue Ruling 88-36, and Chapter 5: “Social Security and Medicare Coverage” in Publication 963PDF.

Employees hired before April 1, 1986 may be covered for Medicare through a Section 218 Agreement.

Contacting a State Social Security Administrator

State Administrators can provide information and answer questions about Social Security and Medicare coverage in your state. A directory of state administrators can be found at