Does an Arkansas community college instructor have to report overload pay separately, and should it be on a 1099?

Plain-English summary

State Representative Rick McClure asked why a Pulaski Tech instructor must disclose pay for overload classes when the institution already has an overload contract. He also asked whether the institution should issue a separate 1099 instead of including that pay on a W-2.

The AG explained that Arkansas requires salaried state employees to report each additional source of more than $500 in income for services to a state public agency during the preceding calendar year. The employee's disclosure can identify work for other agencies that the employer would not know from its own contract. The opinion says a required form's omission or false filing can lead to a fine after conviction.

The disclosure requirement does not determine federal tax classification. The AG said whether a person is an employee or independent contractor depends on the payer's control over the work and the facts of the arrangement. Adjunct professors are typically W-2 employees, and the AG thought independent-contractor classification unlikely for the described overload class. He expressly declined to decide which form Pulaski Tech should issue to this or another instructor. Footnote 9 cites Robinson v. Commissioner as a contrasting example involving a professor's curriculum work and non-credit classes for a different university.

What this means for you

Arkansas state employees with additional agency income

The opinion says salaried employees must disclose each source of additional income over $500 for services to a state public agency, including the kind of overload teaching described in the request. The form serves a different purpose from the institution's employment contract and tax forms.

Higher education payroll offices and instructors

The AG found no automatic link between a state extra-income disclosure and a 1099. He said classification depends on the specific facts and the payer's control over the work, and did not determine Pulaski Tech's correct form for any instructor.

Common questions

Why report overload pay if the college already knows about it?
The AG said an employer knows about its own contract but may not know whether the employee has other income from state public agencies. Arkansas law places the disclosure obligation on the employee.

Does filing an extra-income disclosure mean the instructor is an independent contractor?
No. The AG said the state disclosure question and federal tax classification are separate.

Should Pulaski Tech issue a W-2 or 1099 for overload classes?
The AG thought contractor status unlikely for the described work, but said the answer depends on the facts and declined to specify the form Pulaski Tech should issue.

Did the opinion cite a Tax Court case involving a professor treated as a contractor?
Yes. Footnote 9 cites Robinson, involving curriculum development and non-credit training courses at another university. The AG used it as a contrasting case while emphasizing that classifications depend on the work arrangement.

Background and statutory framework

A.C.A. § 21-8-204(a) requires the annual disclosure of qualifying extra income for services rendered to state public agencies. The opinion cites § 21-8-203 for the legislature's purpose and § 21-8-202 for a penalty for failure or false filing. For tax forms, the AG cites I.R.C. § 6041A(a) and IRS guidance about control over the work. Footnotes 8 and 9 cite Tax Court decisions about adjunct teaching and a contrasting independent-contractor arrangement.

Citations

• A.C.A. § 21-8-204(a) (state employee income disclosure)
• A.C.A. § 21-8-202 (failure or false filing)
• I.R.C. § 6041A(a) (nonemployee services reporting)
• Schramm v. Commissioner, 102 T.C.M. (CCH) 233 (2011)
• Beitel v. Commissioner, T.C. Summ.Op. 2001-101
• Robinson v. Commissioner, 101 T.C.M. (CCH) 1473 (2011)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2023-014
April 27, 2023
The Honorable Rick McClure
State Representative
2424 Sulphur Springs Road
Malvern, Arkansas 72104-6081

Dear Representative McClure:

You have requested my opinion on an issue faced by your constituent who is an instructor at the University of Arkansas, Pulaski Technical College. You state that Pulaski Tech has recently informed its instructors that they must report "extra income," as required by A.C.A. § 21-8-201 et seq., not only if they teach adjunct classes for other institutions of higher education but also if they teach "overload" classes at Pulaski Tech. An "overload" class is a class taught by an instructor for extra compensation in addition to the instructor's regular course load for which he or she receives salaried pay. You also report that Pulaski Tech lumps all compensation together on a W-2 form and does not issue a separate 1099 form to instructors for teaching overload classes.

Given the foregoing, you have asked the following two questions:

1. Why does the State require an employee to produce documentation of "extra income" if said employee executed the necessary documentation including an overload contract with the institution?

2. If extra income is to be reported separately, should Pulaski Tech issue 1099 forms to its instructors that report such extra income?

RESPONSE

In response to your first question, the employment documentation that an employing state institution of higher education has in its possession differs from the annual income disclosure statements that state employees must file. In response to your second question, there is no connection between whether an instructor's income must be disclosed on the annual income disclosure statement and whether the instructor should be issued a 1099 form. The 1099 tax form is used to report payments to independent contractors, whose status as such depends on the amount of control exercised by the payer. Whether an instructor should be issued a W-2 or a 1099 tax form will depend on the facts of each case, but adjunct professors are usually considered W-2 employees for tax purposes.

DISCUSSION

Question 1: Why does the State require an employee to produce documentation of "extra income" if said employee executed the necessary documentation including an overload contract with the institution?

The overload contract and the general reporting requirements serve different purposes.

Arkansas's general reporting rules require salaried state employees to disclose each additional source of income over $500 they receive during the preceding calendar year for services "rendered to any public agency of this state." The General Assembly has determined that such income disclosures help government operate more efficiently and minimize opportunities for conflicts of interest. Employees of state institutions of higher education file the annual income-disclosure statements with the president of their institution, and all other state employees must file the statements with the Secretary of State.

In the factual scenario you relate, the employer already knows about the employee's additional source of income, so one might question why the employee must report the additional income in that situation. But even in that situation, the employer cannot know whether this is the only extra income earned by the employee or whether the employee performs additional services for other state agencies, such as consulting work. That is why current Arkansas law puts the burden on employees to list each source of income in excess of $500 for wages, salary, or fees for services rendered to any public agency of the state. Thus, the employee must inform the employing institution of all extra income in excess of $500 earned from a public agency of the state, which is the purpose of the reporting form.

Furthermore, failure to file the required disclosure or filing a false disclosure is a criminal violation that, upon conviction, is punishable by a fine. Given the potential criminal penalties, it makes sense that the state has placed the onus on the employee to list all sources and amounts of extra income and to verify the accuracy of the information provided before signing and submitting the form.

Question 2: If extra income is to be reported separately, should Pulaski Tech issue 1099 forms to its instructors that report such extra income?

Questions about whether someone should receive a 1099 or a W-2 are highly factual. And since I am not a factfinder when issuing opinions, I cannot definitively opine on which tax form Pulaski Tech should provide to your constituent or to any other instructor. These sorts of questions about specific employment arrangements should be directed to local counsel or to taxing authorities, including the Revenue Division of the Arkansas Department of Finance and Administration and the federal Internal Revenue Service.

I can, however, generally discuss the relevant law. Your question appears to be based on the erroneous assumption that when a person earns "extra income" as described in A.C.A. § 21-8-201 et seq., the person must also be classified as an independent contractor for purposes of that income. But the law does not support this inference. There is no inherent link between whether someone must report "extra income" and whether that person is an independent contractor.

The payer's ability to control the details of the work is the key factor that distinguishes an independent-contract relationship from an employer/employee relationship. As a general rule, an individual is an independent contractor when the payer has the right to control or direct the result of the work but not what will be done or how the result will be achieved. But when the payer has the right to control the details of how the services are performed, an employer/employee relationship likely exists, which means the individual is an employee, not an independent contractor. The result of this analysis determines whether the person being paid is an independent contractor and, therefore, must receive a 1099.

The foregoing analysis, the type and degree of control over the work, is neither dispositive on nor relevant to the question of whether someone received income over $500 in addition to the person's regular salary. Accordingly, both state employees who perform additional work as independent contractors and those who perform additional work as employees might have to report their additional earnings on income disclosure statements, depending on the circumstances.

With respect to the situation you have described, adjunct professors are typically considered W-2 employees, even if they teach on a course-by-course basis at different institutions. This classification has been challenged in U.S. Tax Court, which has generally upheld the classification, finding that adjunct professors are common-law employees of the universities at which they teach. As a result, I think it unlikely that an instructor who teaches an overload class would be considered an independent contractor and issued a 1099 for income earned from teaching that class. But, as explained above, a specific employee's classification heavily depends on all the attendant facts, so I cannot definitively state which tax form Pulaski Tech should issue to your constituent or any other similarly situated instructor.

Senior Assistant Attorney General Kelly Summerside prepared this opinion, which I hereby approve.

Sincerely,

TIM GRIFFIN
Attorney General

1 A.C.A. § 21-8-204(a) (Repl. 2022).

2 A.C.A. § 21-8-203 (Repl. 2022).

3 A.C.A. § 21-8-204.

4 A.C.A. § 21-8-202 (Repl. 2022).

5 See I.R.C. § 6041A(a) (requiring any service-recipient engaged in a trade or business who pays remuneration aggregating $600 or more during the calendar year to any person who is a non-employee for services rendered to file an information return setting forth the aggregate amount of such payments and the name and address of the recipient). Beginning with tax year 2020, payors use Form 1099-NEC. Prior to that, Form 1099-MISC was used. See Instructions for Forms 1099-MISC and 1099-NEC (2020), p.1.

6 U.S. Dept. of the Treasury, Internal Revenue Service. Independent Contractor Defined. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined (Nov. 2, 2022).

7 Id.

8 See, e.g., Schramm v. Commissioner, 102 T.C.M. (CCH) 233 (2011); Beitel v. Commissioner, T.C. Summ.Op. 2001-101; I.R.S. Priv. Ltr. Rul. 91-05-007 (Oct. 29, 1990); I.R.S. Priv. Ltr. Rul. 89-25-001 (Nov. 21, 1988).

9 See Schramm, 102 T.C.M. (CCH) 233; Beitel, T.C. Summ. Op. 2001-101; but see Robinson v. Commissioner, 101 T.C.M. (CCH) 1473 (2011) (finding that a full-time professor at Rowan University who prepared a curriculum for Temple University’s Criminal Justice Training Program, was paid a set fee for the curricula development, and taught non-credit courses at Temple University to state employees but not regular students was an independent contractor providing services to Temple University).