Determine Coverage

Over the decades, Social Security and Medicare for state and local governments have evolved into a complex matrix of laws that significantly differ from those governing private employers. To determine appropriate coverage for public employees, five key questions must be answered. Once these threshold questions have been answered, correct coverage can be ascertained. 

Step One: What is the worker’s employment status?

The first step in determining appropriate FICA coverage is to identify whether each worker is an employee or an independent contractor. Whether an individual is classified as an independent contractor or an employee has important tax consequences. For guidance in answering this question, revisit the Self-Employed and Independent Contractors section.

Step Two: Are the services excluded from FICA coverage?

Certain services cannot be covered by Social Security or Medicare. The following services are not covered by full Social Security coverage. Services performed:

• By individuals hired to be relieved from unemployment. (This does not include services performed by individuals under work-training or work-study programs. These programs are designed to provide work experience and training to increase the person’s employability.)
• In a hospital, home or other institution by a patient or inmate thereof as an employee of a state or local government employer.
• For a state or local government by workers hired on a temporary basis in emergencies such as a fire, storm, snow, earthquake, flood or similar emergencies.
• By election officials or workers who are paid less than the threshold amount stated in the 218 Agreement or Modification.
• By a nonresident alien temporarily residing in the U.S. holding an F1, M1, or Q1 Visa. Typically, these services are performed to carry out the purpose for which the alien was admitted to the U.S.

Step Three: Are the services covered under a Federal-State Agreement?

If the services the employee is performing are covered under a Federal-State Agreement, then coverage is straightforward—the employee must be covered for FICA. 

Social Security coverage obtained through a Federal-State Agreement cannot be terminated. Carefully examine whether the services performed by the employee are covered by the Federal-State Agreement. Refer to the Find a Section 218 Agreement page to determine if the entity is covered, and then request a copy from the Colorado State Social Security Administrator by emailing: cdle_pess@state.co.us. 

Step Four: Is Social Security coverage mandatory for this employee?

Employees not covered by a retirement plan must be covered by FICA, unless they are mandatorily excluded from coverage. In general, an employee should be paying FICA if they are not paying into a public retirement system (e.g., Public Employees’ Retirement Association (PERA), Fire and Police Pension Association (FPPA) or a qualifying 401(k), 401(a), 403(b) or 457 plan).

If an employee is covered by Social Security and Medicare as a result of a Federal-State Agreement (Section 218 Agreement), the FICA coverage cannot be terminated. However, if the employee is paying into Social Security and Medicare as a result of mandatory Social Security effective April 1, 1986, it may be possible for the employer to sponsor a qualified public retirement system instead of paying into Social Security.

Step Five: When was the employee hired?

For employees not covered by Social Security, the date of hire may determine the employees’ Medicare-only obligation. There are three conditions that dictate Medicare obligations:

1. All employees who were hired or rehired after March 31, 1986, are subject to mandatory Medicare-only coverage, unless specifically excluded by law.
2. All employees who are covered for Social Security, either via a Federal-State Agreement or mandatory Social Security, must automatically pay Medicare.
3. For employees/employers paying into a public retirement system, the date the employee was hired is the determining factor for whether the employee and employer are required to pay Medicare. If the employee was hired or rehired by the state or local employer after March 31, 1986, they are subject to the Medicare tax.

The date an employee was hired is the key to determine appropriate Medicare coverage for employees not paying into Social Security. In order to be excluded from Medicare-only obligations, an employee must not be paying Social Security and must have been in continuous employment prior to April 1, 1986.

Contact Us

Please contact us with any questions you may have at cdle_pess@state.co.us