IRS Publication 963 – IRS Forms, Instructions, Pubs 2026

IRS Publication 963 – IRS Forms, Instructions, Pubs 2026 – If you’re a state, local, or Indian tribal government employer, payroll administrator, or HR professional handling Social Security and Medicare compliance, IRS Publication 963 is your go-to resource. Officially titled the Federal-State Reference Guide: A Federal-State Cooperative Publication, this comprehensive guide from the Internal Revenue Service (IRS), Social Security Administration (SSA), and National Conference of State Social Security Administrators (NCSSSA) simplifies complex rules for FICA taxes, worker classification, coverage agreements, and reporting.

The latest revision (Rev. 5-2025, posted May 2025) updates guidance on withholding, public retirement systems, and tribal government obligations. Whether you’re navigating Section 218 Agreements or determining if your employees qualify for mandatory Medicare coverage, Pub 963 delivers clear, actionable insights.

Download the free PDF here: IRS Publication 963 (Rev. 5-2025)

What Is IRS Publication 963 and Why Does It Matter?

Published since 1995 as a collaborative effort between the IRS, SSA, and NCSSSA, Publication 963 serves as the definitive reference for federal-state cooperation on employment taxes. It focuses on Social Security (OASDI) and Medicare coverage for approximately 90,000 state and local government entities, including cities, counties, school districts, and tribal governments.

Key purposes include:

  • Explaining Social Security and Medicare tax withholding and reporting.
  • Guiding worker status determinations (employee vs. independent contractor).
  • Detailing Section 218 Agreements for voluntary coverage.
  • Outlining mandatory coverage rules post-1991.
  • Addressing public retirement systems as FICA alternatives.
  • Providing compliance tips to avoid penalties.

This publication is informational only—it isn’t legal authority. Always cross-reference the Internal Revenue Code (IRC), Social Security Act, regulations, and rulings.

Who needs it?

  • State and local government payroll teams
  • Indian tribal employers (with special notes on Section 218A)
  • Public school districts and instrumentalities
  • State Social Security Administrators (SSSAs)
  • Anyone dealing with elected officials, volunteers, or rehired annuitants

Core Topics Covered in IRS Publication 963

The 2025 edition organizes content into nine chapters, plus a glossary, appendix, and index. Here’s a breakdown of the most critical sections:

1. History and Basics of Social Security for Government Employers (Chapter 1)

  • Traces coverage from the 1930s exclusion to modern mandates.
  • Covers key milestones: 1951 Section 218 start, 1986 Medicare mandate, 1991 mandatory Social Security for non-retirement plan members.
  • Includes flowcharts for determining coverage.

2. Government Entities and Federal Taxes (Chapter 2)

  • Defines states, political subdivisions, instrumentalities, and interstate entities.
  • Explains FUTA exemptions for governments (but state unemployment insurance often applies).

3. Wage Reporting and Employment Taxes (Chapter 3)

  • Details FICA rates: 6.2% Social Security (each for employee/employer, wage base applies) + 1.45% Medicare (uncapped) + 0.9% Additional Medicare Tax over $200,000.
  • Covers forms: W-2, 941, 944, 1099-NEC.
  • Explains deposits via EFTPS, sick pay, fringe benefits, and back pay.

4. Determining Worker Status (Chapter 4)

  • Uses the common-law test: Behavioral control, financial control, and relationship of the parties.
  • Special rules for public officers (e.g., governors, judges are employees), elected officials, home care providers, and volunteers.
  • Form SS-8 for IRS rulings; Section 530 relief for reasonable misclassifications.

5. Social Security and Medicare Coverage (Chapter 5)

  • Mandatory vs. voluntary coverage.
  • Exclusions: Students, election workers (thresholds like $1,900 in 2020, updated annually), continuing employment exceptions.
  • Medicare for hires after March 31, 1986.

6. Public Retirement Systems as FICA Alternatives (Chapter 6)

  • Qualified plans must meet vesting and benefit standards (e.g., Rev. Proc. 91-40 safe harbors).
  • Part-time, seasonal, and temporary employees often excluded.

7–9. Roles of SSA, IRS, and State Administrators + Special Topics

  • Contacts for questions.
  • Indian tribal governments: Pub 4268 companion guide.
  • Windfall Elimination Provision (WEP) and Government Pension Offset (GPO).

Pro Tip: Each chapter ends with FAQs and primary contacts (IRS, SSA, or STATE).

How to Use IRS Publication 963 in 2026?

  1. Download the latest version from IRS.gov (search “Publication 963”).
  2. Search the PDF for keywords like “Section 218,” “worker status,” or “Medicare.”
  3. Cross-reference with Pub 15 (Employer’s Tax Guide) and Pub 15-A (Supplemental Guide).
  4. Consult your State Social Security Administrator for state-specific agreements (find them at ncsssa.org).

Common Pitfalls to Avoid:

  • Misclassifying workers → Back taxes + penalties.
  • Ignoring Additional Medicare Tax on high earners.
  • Failing to issue timely W-2s (electronic filing required for 250+ forms).
  • Pub 5138: Quick Reference Guide for Public Employers
  • Pub 15: Circular E, Employer’s Tax Guide
  • Pub 4268: Employment Tax for Indian Tribal Governments
  • SSA.gov/slge: State and Local Government Employers page

Why IRS Publication 963 Remains Essential in 2026?

With ongoing changes in tax law, workforce demographics, and remote work, staying compliant prevents audits and ensures employees receive proper benefits. The 2025 revision incorporates updates through 2020 data and recent rulings, making it the most current tool available.

Bottom line: For any public sector payroll professional, IRS Publication 963 isn’t just a guide—it’s a compliance lifeline.

Action Step: Grab your copy today at irs.gov/pub/irs-pdf/p963.pdf and bookmark it for quick reference. Questions? Reach out to your SSSA or IRS Customer Account Services at 877-829-5500.

This article is based on the official IRS Publication 963 (Rev. 5-2025) and related IRS/SSA resources as of February 2026.