CHAPTER 6. SOCIAL SECURITY

6-1. BACKGROUND. The 1935 Social Security Act and related laws establish
a

number of programs which have the basic objectives of providing for the

material needs of individuals and families, protecting aged and disabled

persons against the expenses of illnesses that could other-wise exhaust

their savings, keeping families together, and giving children the

opportunity to grow up in health and security. These include:

a\. Retirement insurance.

b\. Survivors insurance.

c\. Disability insurance.

d\. Hospital and medical insurance for the aged, the disabled, and

those with end-stage renal disease.

e\. Black lung benefits.

f\. Supplemental security income.

g\. Unemployment insurance.

h\. Public assistance and welfare services, including: 1) Aid to needy

families with children; 2) Medical assistance; 3) Maternal and

child health services; 4) Child support enforcement; 5) Family and

child welfare services; 6) Food stamps; and 7) Energy assistance.

The Department of Health and Human Services operates the retirement,

survivors, disability, hospital and medical insurance, black lung

benefit, and supplemental security income programs. The others are

operated by the States with Federal cooperation.

6-2 PARTICIPATION REQUIREMENTS. Sec. 218 of the Social Security Act (42

U.S.C. Sec. 218 (1985 Supp.)) provides that a State may enter into a

voluntary agreement with the Secretary of Health and Human Services to

provide Social Security coverage for its employees or employees of local

governments (e.g., HAs) within the State. Generally, before enactment of

Sec. 9002 of the Omnibus Budget Reconciliation Act of 1986 (OBRA\'86),

wages paid by HAs were excluded from taxation under the Federal
Insurance

Contributions Act (FICA) by Sec. 3121(b)(7) of the code.

6-3. CHANGES TO SOCIAL SECURITY ACT. OBRA\'86 amended Sec. 218 of the
Social

Security Act with the result that, starting in 1987, state governments

are relieved from (1) collecting Social Security (FICA) contributions

from HAs and (2) liability for verifying and depositing the amounts owed

by HAs.

6-4. CHANGES TO INTERNAL REVENUE CODE. Among other changes, OBRA\'86
enacted

Sec. 3121(b)(7)(E) and See. 3126 of the Code. Sec. 3121(b)(7)(E)

provides that services covered under a Sec. 218 agreement will be
treated

as employment for purposes of FICA, effective with respect to wages paid

after December 31, 1986. Sec. 3126 specifies who must file the FICA tax

return, Form 941 (see paragraph 6-6).

6-5. EFFECT OF PROVIDING THAT SERVICES UNDER SEC. 218 AGREEMENT ARE
SUBJECT TO

FICA. States are no longer responsible for collecting the Social

Security contributions from HAs and reporting those amounts to Social

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Security. Thus, each HA covered by a Sec. 218 agreement must file its

return with the IRS and deposit FICA taxes through the Federal Tax
Deposit

system. (See IRS Circular E, Employer\'s Tax Guide, available from IRS

offices, for further information.)

6-6. RETURN USED TO REPORT FICA TAXES. HAs covered by Sec. 218
agreements

should use Form 941, Employer\'s Quarterly Federal Tax Return, to report

FICA taxes starting with the return due for the calendar quarter ending

March 31, 1987. HAs covered by Sec. 218 agreements should no longer file

Form 941E, Quarterly Return of Withheld Federal Income Tax and Hospital

Insurance (Medicare) Tax. HAs covered by Sec. 218 agreements should

report all FICA taxes (including Medicare tax) and withheld Federal

income tax on Form 941 even if some employees are subject only to the

Medicare tax. HAs not covered by Sec. 218 agreements should continue to

file Form 941E. Under no circumstances should a HA file both Form 941

and Form 941E.

6-7. EMPLOYER IDENTIFICATION NUMBER. HAs must use their individual
employer

identification number (EIN) and not the number assigned by the Social

Security Administration for purposes of payment of Sec. 218

contributions. If a HA has not been assigned an EIN, it should file Form

SS-4, Application for Employer

Identification Number, with the appropriate Internal Revenue Service

Center. The EIN is a 9-digit number arranged as follows: 00-0000000.

Form SS-4 is available at Internal Revenue Service or Social Security

Administration Offices.

6-8. PENALTIES. Absent a showing of reasonable cause, HAs are subject to

penalties for late filing and late payment under IRC Sec. 6651 and to

penalties for failing to deposit or for claiming overstated deposits

under IRC Sec. 6656.

6-9. IMPACT OF OBRA\'86 ON HAs NOT COVERED BY SEC. 218 AGREEMENTS. HAs
not

covered by Sec. 218 agreements should continue to file Form 941E to

report withheld Federal income tax as well as Medicare tax for employees

hired after March 31, 1986. See Rev. Rul. 86-88, 1986-2B I.R.B. 10.

Treatment of Medicare tax for employees hired after March 31, 1986 by
HAs

not covered by Sec. 218 was not affected by OBRA\'86. HAs not covered by

Sec. 218 agreements are reminded that the transition rules do not apply

to them. They must make deposits under the rules applicable to all

employers and must aggregate withheld Federal income tax with any

Medicare tax and any non-Sec. 218 agreement FICA taxes due.

6-10. FOR ADDITIONAL INFORMATION. For additional information about
reporting

any payment of Federal employment taxes, see IRS Circular E. Assistance

on Social Security matters may be obtained at the nearest Social
Security

District Office. This office provides information routinely to inquirers

and advises and assists claimants and beneficiaries free of charge

regarding any Social Security matter.

6-11. CAUTION. Each HA should examine its files for positive
documentation

that it is covered under a Sec. 218 agreement. Unless the HA is

specifically included in a Sec. 218 agreement, its employees may not
have

any Social Security coverage and may not be entitled to any benefits
even

though deductions and payments for such coverage have been made. It may

not be possible in some instances to secure a full refund of any
payments

erroneously made. Documentation of proper participation in Social

Security is in the form of a contract between the HA and the state
agency

responsible for administering Social Security activities. If the

contract cannot be located, the HA shall contact the state\'s Social

Security office in writing immediately to obtain the contract. Knowledge

of the receipt of Social Security benefits by a former employee is not

sufficient documentation.

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