To amend the Internal Revenue Code of 1986 to clarify that employees of a political subdivision of a State shall not lose their exemption from the hospital insurance tax by reason of the consolidation of the subdivision with the State.

Amends the Internal Revenue Code to prohibit an employee of a State political subdivision from being treated as having terminated the employment relationship with the subdivision due to the subdivision's abolition if, as a result of such abolition (or consolidation), the employee becomes a State employee with the same or substantially the same position.