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' comp purposes. State income tax withholding under Section 27-7-305 follows the same logic. The town attorney is harder. Section 21-15-25 lets the municipality "annually appoint" an attorney with set duties and compensation, or "employ counsel" on a temporary basis. Whether a particular town attorney is a salaried municipal employee (whose pay is wages subject to withholding) or an independent contractor (who handles their own taxes) is a fact-specific board determination, looking at the substance of the engagement.

What this means for you

City clerks and municipal payroll staff

Treat alderman pay as wages for Mississippi income tax withholding. If you have not been doing that, fix it now and consult the Department of Revenue about back-correction. For the federal pieces, your federal payroll software will already be applying the IRS rule for elected officials, but verify with the town's accountant or the IRS.

Mayors and boards of aldermen

If your town attorney is on a regular monthly retainer for "all things city" rather than billing you per matter, the AG's Blackwell precedent treats them as a city employee. That changes how their pay is taxed, whether they are eligible for benefits, and how PERS may handle it. If you intend the relationship to be independent contractor, document it: hourly billing or per-matter fee, no employee benefits, freedom to handle outside work, etc. Inconsistency between the contract and the practice will give the State Auditor and DOR something to question.

Town attorneys

You have a personal stake in how the relationship is documented. If you are treated as a contractor but the town has been paying you a flat $X per month "for being our lawyer," the AG's prior opinions suggest you may actually be an employee for state tax purposes. Have a conversation with the board about which you intend to be, and have the contract reflect that intent.

Mississippi residents

This is plumbing, but it matters. When small towns get the classification wrong, the State Auditor often finds an underpayment of state income tax, which becomes the town's liability. The AG's answer here gives every Mississippi town the rule for the easy half (aldermen) and the test for the harder half (the attorney).

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 for federal taxes, Social Security, and Medicare?
The AG won't opine. Talk to the IRS or your town's federal payroll provider. The IRS definition at 26 U.S.C. § 3401(c) includes elected officials of political subdivisions as employees, which usually means yes, you withhold.

Is our city attorney an employee or a contractor?
That's the board's call, based on the actual relationship. Read MS AG Op., Blackwell (Nov. 6, 1980): if the attorney is paid a specified amount each month and in exchange "at all times represents the City," they are likely an employee. If they are engaged occasionally for specific matters, they are likely a contractor.

Does it matter if our city attorney has their own private law practice on the side?
Yes, that fact cuts toward independent contractor status. So does billing per matter, lack of benefits, and the absence of a continuous duty to be available.

What if we have been miscategorizing the city attorney for years?
Talk to the State Auditor's office and the Mississippi Department of Revenue. The earlier you raise it, the easier the cleanup typically is.

Can the board just decide to call the attorney a contractor regardless of the facts?
No. The board's "designation" is not what controls. The substance of the relationship controls. The AG cited Blackwell for that proposition explicitly.

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." Aldermen, salaried town employees, and salaried city attorneys all fall under that definition; non-salaried attorneys engaged on a per-matter basis usually do not.

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. § 3401(c) (federal definition of "employee" for tax withholding purposes, includes elected officials of political subdivisions)
• 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