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A Section 218 Agreement is a formal arrangement between a state and the federal Social Security Administration. Such agreements allow state and local governments to offer their employees the option to become covered by Social Security, thus allowing them to receive Social Security benefits. However, they are particularly significant in terms of managing employees' unemployment compensation.

When a state or local government enters into a Section 218 Agreement, it can provide unemployment compensation coverage to its employees who may not otherwise be covered under the traditional state unemployment insurance (UI) programs. This agreement enables governments to extend their UI coverage to employees who work in positions that are typically exempt from it, ensuring they receive unemployment benefits if they become unemployed.

While Social Security tax withholding and exemptions from Social Security taxes are related to employees' broader benefits, they do not directly reflect the primary purpose of Section 218 Agreements, which focus more on unemployment compensation. Retirement benefits are also distinct from the specific provisions within a Section 218 Agreement.