Does a Mississippi town have to withhold state income tax from aldermen's pay and from the city attorney's pay?

Subject

Withholding of Social Security and Taxes from Salary

Recipient

Thomas L. Tullos, Esq., Attorney, Town of Louin

Plain-English summary

The Town of Louin asked whether it had to withhold Social Security, federal income tax, Medicare, and state income tax from the monthly pay it gives its aldermen and town attorney. The AG split the answer cleanly. Federal questions are off-limits because the AG cannot opine on federal law; for those, the town has to talk to the IRS or federal counsel. (The opinion does cite the federal definition of "employee" at 26 U.S.C. § 3401(c), which expressly includes "an officer, employee, or elected official of...a State, or any political subdivision," as a courtesy reference.)

For Mississippi state income tax, aldermen are treated as employees of the town. They are paid by the town, perform official duties for the town, and the AG has previously opined they are "employees" for workers' compensation purposes. State income tax withholding under Section 27-7-305 applies to their wages. The town attorney's classification is a factual question for the governing authorities. The AG says salaried attorneys who are city employees are employees for state income tax purposes, but does not decide the status of this town attorney.

What this means for you

City clerks and municipal payroll staff

Under this opinion, compensation paid to aldermen is wages paid to a salaried municipal employee for Mississippi income tax purposes, so § 27-7-305 withholding applies. The AG declined to address federal income tax, Social Security, and Medicare, referring those to the appropriate federal officials, and recommended seeking further guidance on income tax withholding from the Department of Revenue.

Mayors and boards of aldermen

For the town attorney, the opinion says whether the attorney is a municipal employee or an independent contractor is "a determination of fact to be made by the governing authorities based on the circumstances surrounding employment." It cites Blackwell that an attorney "paid a specified amount each month, for which compensation the attorney at all times represents the City, is a city employee and the compensation paid is salary," while § 21-15-25 also allows employing counsel "should the occasion require."

Town attorneys

Under this opinion, your classification for state tax purposes turns on the substance of the engagement, not its label. The AG cites Blackwell: an attorney paid a set monthly amount who at all times represents the city is a city employee whose pay is salary, whereas counsel engaged occasionally "should the occasion require" under § 21-15-25 points the other way.

Mississippi residents

The opinion gives towns a clear rule for the easy half, alderman pay is wages subject to state income tax withholding, and a fact-based test for the harder half, whether the town attorney is an employee or an independent contractor, which the board must decide. The AG referred income-tax-withholding questions to the Department of Revenue.

Common questions

Are aldermen W-2 employees or 1099 contractors for state tax? For Mississippi income tax withholding, they are wage-paid employees. Section 27-7-305(1) requires withholding from wages of "employees," and the AG treats elected aldermen as municipal employees for that purpose.

What about federal taxes, Social Security, and Medicare? The AG gives no withholding answer on these federal questions and refers them to appropriate federal officials. It notes the federal definition of "employee" at 26 U.S.C.A. § 3401(c) but draws no federal withholding conclusion.

Is our city attorney an employee or a contractor?
That's the governing authorities' factual determination, based on the circumstances of employment. The opinion quotes Blackwell: an attorney paid a specified monthly amount who "at all times represents the City" is a city employee whose compensation is salary. It also notes that § 21-15-25 allows temporary counsel when occasion requires.

What distinguishes an employee attorney from a contractor under this opinion? The AG points to § 21-15-25, which lets a municipality "annually appoint" an attorney with prescribed duties and fixed compensation, or "employ counsel to represent the interest of the municipality, should the occasion require." Under Blackwell, an attorney paid a set monthly amount who at all times represents the city is a city employee whose pay is salary.

Where did the opinion say to go with withholding questions? The AG recommended seeking further guidance on income tax withholding from the Mississippi Department of Revenue.

Can the board just decide to call the attorney a contractor regardless of the facts? The opinion treats the classification as "a determination of fact to be made by the governing authorities based on the circumstances surrounding employment," citing Blackwell, so it turns on the substance of the relationship rather than a label.

Background and statutory framework

Section 21-3-5 gives municipal governing authorities power to hire employees, set compensation, and prescribe duties. The AG has consistently treated elected aldermen as municipal employees for compensation and workers' compensation purposes (MS AG Op., Greer (Jan. 12, 1994); MS AG Op., McCreary (July 29, 2005); MS AG Op., Tullos (Dec. 19, 2003)).

Section 21-15-25 controls municipal attorneys, providing two paths: (a) annual appointment of "an attorney-at-law for the municipality" with prescribed duties and fixed compensation, or (b) employment of counsel "to represent the interest of the municipality, should the occasion require." The dual structure invites the employee-versus-contractor question. Under Blackwell (Nov. 6, 1980), an attorney "paid a specified amount each month, for which compensation the attorney at all times represents the City," is a city employee. Variations on the engagement point the other direction.

Section 27-7-305 imposes Mississippi income tax withholding on wages paid to "employees." The AG concludes that aldermen and salaried attorneys who are city employees fall within that rule. It leaves the status of a particular municipal attorney to the governing authorities.

Citations

• Miss. Code Ann. § 21-3-5 (municipal authority to hire and set compensation)
• Miss. Code Ann. § 21-15-25 (municipal attorney appointment or employment)
• Miss. Code Ann. § 27-7-305 (Mississippi state income tax withholding from employee wages)
• Miss. Code Ann. § 27-7-305(1) (withholding amount credited against employee tax liability)
• 26 U.S.C.A. § 3401(c) (federal definition of "employee" noted without a federal withholding conclusion)
• MS AG Op., Greer (Jan. 12, 1994) (board authority over alderman compensation)
• MS AG Op., McCreary (July 29, 2005) (alderman's salary set by governing authorities)
• MS AG Op., Tullos (Dec. 19, 2003) (aldermen treated as employees for workers' comp)
• MS AG Op., Pepper (May 29, 2015) (appointment of municipal attorney is discretionary)
• MS AG Op., Blackwell (Nov. 6, 1980) (employee-vs-contractor test for municipal attorneys)

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2023/05/T.Tullos-May-18-2023-Withholding-of-Social-Security-and-Taxes-from-Salary.pdf

Original opinion text

May 18, 2023
Thomas L. Tullos, Esq.
Attorney, Town of Louin
Post Office Drawer 567
Bay Springs, Mississippi 39422
Re:

Withholding of Social Security and Taxes from Salary

Dear Mr. Tullos:
The Office of the Attorney General has received your request for an official opinion. Question Presented Is the town of Louin ("Town") required to withhold Social Security, federal taxes, state taxes, and Medicare taxes from the compensation paid each month to the aldermen and town attorney? Brief Response This office is unable to opine on questions of federal law; therefore, we offer no opinion on the questions of Social Security, federal taxes, and Medicare. With regard to state taxes, compensation paid to aldermen would be considered wages paid to a salaried employee of the Town for purposes of taxation. However, whether an attorney working for a municipality is employed as a city employee or as an independent contractor is a determination of fact to be made by the governing authorities based on the circumstances surrounding employment. Applicable Law and Discussion The Office of the Attorney General may not interpret or opine on federal law; therefore, we are unable to answer your questions about federal income tax, Social Security, and Medicare. We refer you to the appropriate federal officials for assistance with these questions. However, please note that the IRS defines employee as "an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing." 26 U.S.C.A. § 3401(c) (emphasis added).

Mississippi Code Annotated Section 21-3-5 authorizes the governing authorities of a municipality to hire employees, set their compensation, and prescribe their duties. Consequently, this office has opined that Section 21-3-5 provides authority for the governing authorities to establish all reasonable policies relative to compensation of the mayor and board of aldermen. MS AG Op., Greer at 1 (Jan. 12, 1994); see also MS AG Op., McCreary at 1 (July 29, 2005) (opining that an alderman's salary is set and determined by the municipal governing authorities). This office has also opined that for purposes of workers' compensation coverage, even though aldermen "are elected rather than hired under a contract of employment, elected officials receive a salary and perform official duties on behalf of the municipality, and this being the case, are to be considered 'employees' of the municipality. . . ." MS AG Op., Tullos at 2 (Dec. 19, 2003) (emphasis in original). Section 21-15-25 authorizes a municipality to hire an attorney for the municipality and states, in pertinent part: The governing authorities may annually appoint an attorney-at-law for the municipality, prescribe his duties and fix his compensation, and/or they may employ counsel to represent the interest of the municipality, should the occasion require. For services and duties which the regular city attorney is not required to perform as a result of his employment as such, and which are not covered by the regular compensation paid him, such municipal attorney may be employed and compensated additionally. Appointing an attorney to perform work for the municipality is discretionary. MS AG Op., Pepper at 1 (May 29, 2015). An attorney may be hired and paid under a regular contract for employment, making him a municipal employee, or hired by the municipality as an independent contractor on a temporary basis, "should the occasion require." Miss. Code Ann. § 21-15-25. "An attorney employed to represent the City and paid a specified amount each month, for which compensation the attorney at all times represents the City, is a city employee and the compensation paid is salary." MS AG Op., Blackwell at 3 (Nov. 6, 1980) (internal quotation marks and citation omitted). Whether an attorney working for a municipality is employed as a city employee or as an independent contractor is a determination of fact to be made by the governing authorities based on the circumstances surrounding employment. Blackwell at 4. The State income tax withholding provisions are found in Section 27-7-305, which provides that employers shall deduct and withhold from wages paid to employees an amount to be "credited against the tax liability of the employee. . . ." Id. at (1) (emphasis added). It is the opinion of this office that aldermen are employees of the municipality for state income tax purposes, as are salaried attorneys who are city employees. Whether an attorney working for a municipality qualifies as an employee is a determination of fact to be made by the governing authorities. We recommend seeking further guidance on questions of income tax withholding from the Department of Revenue.

If this office may be of any further assistance to you, please do not hesitate to contact us. Sincerely, LYNN FITCH, ATTORNEY GENERAL By:

/s/ Gregory Alston
Gregory Alston
Special Assistant Attorney General