Mandatory Medicare: New Hire vs. New Member of a Retirement System

A "new hire" for mandatory Medicare purposes is an employee who is a member of a retirement system and who is hired or rehired by a State or local government entity after March 31, 1986. The IRS determines who is a "new hire" for purposes of mandatory Medicare.**

Generally, a new member is an individual who becomes an employee and a member of the retirement system after Social Security coverage is extended to the retirement system coverage group by way of a Section 218 Agreement." Whether an individual is considered a new member of a retirement system upon his/her return to work after a service break is based upon the retirement system rules.

IRS can determine an individual is a "new hire" for mandatory Medicare purposes while at the same time the State determines the individual is not a "new member" of a retirement system (RS). These types of situations are common when rehired annuitants are involved but can also be an issue for an employee who is not an annuitant.

An employee is hired back June 1999, after a break in service, into a State position that is covered by a retirement system. So, she is a "new hire" for mandatory Medicare purposes because of the service break. But if the provisions of the particular retirement system allow that her membership in the RS never terminated, she is not a "new member" of the RS upon her rehire.

Also, in either of the above two examples, if the new hire enters a position that is covered for Social Security under a Section 218 Agreement, mandatory Medicare is not an issue because the position is covered for both Social Security and Medicare under the agreement.

Note:
The term "new hire" is also commonly used to describe any employee who is newly hired by an employer.

References:

• Section 3121(u)(2)(C) of the Internal Revenue Code
• IRS Revenue Ruling 86-88
• IRS Revenue Ruling 88-36
• Social Security Regulation 20 CFR 404.1206(c)

**An employee, hired before 3/31/86, who transfers from one State agency to another agency of the same State without a termination of the overall employment relationship, is not a "new hire" for mandatory Medicare purposes. Likewise, a political subdivision employee, hired before 3/31/86, who transfers from one job to another within the same political subdivision without a termination of the overall employment relationship, is not a "new hire" for mandatory Medicare purposes.