TN 24 (11-09)

Citations: Soc. Sec. Act, Sec. 210 (p)

A. Introduction to Medicare qualified government employment (MQGE)

MQGE is any employment performed by Federal, state, or local employees which is not subject to full Social Security coverage and taxation. Only quarters of coverage for entitlement to hospital insurance (HI) are earned and the employee and employer pay only the HI portion of the Social Security tax.

B. Background on Medicare qualified government employment

Prior to April 1, 1986, state and local government employees were subject to payment of the full FICA tax, only if they were covered under a voluntary Section 218 Agreement. Other state and local government employees paid no FICA taxes. Section 13205 of P.L. 98-272 amended the law to provide that state and local government employees who were hired after March 31, 1986, and are not covered under a Section 218 Agreement, are subject to the HI portion of the FICA tax.

C. Policy for Medicare qualified government employment

1. Coverage

Most employees of state and local governments hired on or after April 1, 1986, are mandatorily covered for Medicare. The state may elect to cover employees hired before April 1, 1986 for the HI portion of the FICA tax by requesting a modification to the its existing Section 218 Agreement. There is no provision for granting deemed HI wage credits for state or local government employment prior to 1986. The first possible month of HI entitlement, based on state and/or local government employment is April, 1986.

2. Exceptions from coverage

Exclude any of the following:

• Service covered by an agreement under section 218 of the Act.

• Service excluded for reasons other than government employment.

• Service to relieve the individual of unemployment.

• Service performed in a hospital, home, or other institution by a patient or inmate as an employee of a state or local employer.

• Service performed on a temporary basis in case of fire, storm, snow, earthquake, flood or other similar emergency.

• Service performed by an election worker or official whose pay is less than $1,500 in calendar year 2009.

3. Continuing employment exception

If none of the above applies, the service is still excluded if performed by an individual:

• Who was performing regular and substantial service for remuneration for the employer before April 1, 1986; and

• Who was a bona fide employee on March 31, 1986; and

• Who did not enter the employment relationship for the purpose of avoiding the HI tax, and whose employment relationship with the employer has not been terminated after March 31, 1986.

4. Modifications to 218 Agreement

A state may modify its agreement to request only HI coverage for those employees who meet the continuing employment exception and who are not otherwise covered under a Section 218 Agreement.