deddleman[at]sfidwater.org wrote:

- quote -

The agreements you refer to are known as Section 218
Agreements and have nothing to do with Medicare. They deal
with FICA only. See my original answer as to why this person
may be grandfathered.

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deddleman[at]sfidwater.org wrote:

- quote -

Here's an IRS Q&A on point. Pay particular attention to the
definition of who is the same employer.

What is the effect on the continuing employment exemption
from Medicare tax when an employee originally hired in 1985
transfers in 2001 from one employer to another within the
same political subdivision?

An employee who is employed by the same political
subdivision, but working in a different office or division,
remains eligible for the continuing employment exception.

Under section 3121(u)(2)(C) of the Code, services performed
by state or local government employees hired on or before
March 31, 1986, who participate in a public retirement
system are exempt from Medicare taxes (if section 3121(b)(7)
otherwise applies), provided that the employees were
performing regular and substantial services for remuneration
for that employer before April 1, 1986, their employment
relationship with that employ was not entered into for
purposes of meeting the exception under section
3121(u)(2)(C), and their employment relationship with that
employee has not been terminated after March 31, 1986.
[Emphasis added.]

This is referred to as the "continuing employment exception"
to the Medicare tax.

Code section 3121(u)(2)(D) states that, for purposes of
subparagraph (C):

(i) all agencies and instrumentalities of a State (as
defined in section 218(b) of the Social Security Act) . . .
shall be treated as a single employer, and

(ii) all agencies and instrumentalities of a political
subdivision of a State (as so defined) shall be treated as a
single employer and shall not be treated as described in
clause (i).

The term "political subdivision" ordinarily includes a
county, city or town. Rev. Rul. 86-88, 1986-2 C.B. 172. Rev.
Rul. 86- 88 states that an employee hired before April 1,
1986, does not qualify for the continuing employment
exception if, after March 31, 1986, the employee transfers
from a political subdivision employer to a state employer.
Employees of a state have more latitude in their transfers
under section 3121(u)(2)(D), as all agencies and
instrumentalities of a state are considered to be a single
employer.

Thus, an employee who qualifies for the continuing
employment exception continues to qualify when transferred
from one employer to another within the same political
subdivision. The following points must be kept in mind.

First, the original hire date of the employee is used in
evaluating the continuing employment exception, as long as
there was no break in service. Thus, for an employee who
transferred after April 1, 1986, from one state agency to
another, the original date of hire would apply. If the
employee transferred from employment with Town A to Town B,
then the date of hire for this purpose would be that in Town
B.

If School Districts A and B are an elementary school and a
high school district that merge into a new entity, a
consolidated school district, then the continuing employment
exemption applies to employees of both A and B. The
continuing employment exception applies to cases of merger
or consolidation of school districts, as the teachers
continue to work for the same employers under a new name.

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If anyone's interested, I found the answer. The Social
Security Admin has a different agreement with each state.
California's allows an employee to transfer between local
agencies without a status change, so the guy is
grandfathered in.

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We have employees who aren't subject to Medicare tax because
they were already here when governments had to start
contributing. We have one employee, though, who started in
1988, two years after the switch, and is not set up for
Medicare. There's no one in accounting who's been here long
enough to know why he wasn't. So, I have two questions: Is
there a reason why he might not be subject to Medicare even
though he was hired after (e.g., he worked for another
government previously and his status carried over here)?
Also, what are the ramifications to us and to him if it was
an error?

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >