Flag Item Medicare
Are any employees exempt from Medicare under the Continuing Employment Exception?
Note: Almost all state and local government employees are covered by Medicare. All employees covered under a
section 218 Agreement are covered and employees covered by mandatory social security tax are also covered,
unless the employee meets the continuing employment exception, IRC §3121(u). The continuing employment
exception applies to an employee hired by a state or political subdivision employer before April 1, 1986, only if the
employee is a member of a public retirement system within the meaning of IRC §3121(b))7)(F) and meets ALL of
the following requirements:
• 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 with that employer was not entered into for purposes of avoiding the Medicare tax;
• The employment relationship with that employer been continuous since March 31, 1986.
The same services listed above under Social Security #4 that were excluded from mandatory social security tax are
also excluded from the Medicare tax. Contact the
State Social Security Administrator
with any questions pertaining
to the foregoing.
Are there any employees from whom Medicare is not withheld, other than those who meet
the exceptions from employment listed above under “Social Security Tax”, Item number 3?
Does the entity employ any rehired annuitants?
Note: A rehired annuitant is an individual who is rehired by his or her employer or another employer that
participates in the same retirement system as the former employer. This includes a former participant in a state
retirement system who has previously retired and who is either (1) receiving retirement benefits under the
retirement system or (2) has reached normal retirement age under the retirement system.
A. If “yes”, (the employer does have rehired annuitants), is social security tax withheld and paid
on those employees?
B. If “yes”, is Medicare tax withheld and paid on those employees?
Note: When an employee retires he or she has terminated employment for purposes of the continuing employment
exception. Thus, if that former employee is rehired, he or she will be subject to Medicare tax, even if the employee
was previously exempt on account of the continuing employment exception.
Catalog Number 66247V