Tribal Social Security election affects FICA status only

Plain-English summary

Chief Counsel considered whether a tribe's decision to enter a Social Security Act section 218A agreement for tribal council members changed their worker classification for other tax purposes. The advice concluded that the Tribal Social Security Fairness Act affects only FICA treatment. Council members not covered by an agreement remain presumptive common-law employees for other Code purposes, including retirement-plan rules, even though their council service is excluded from FICA employment. Members covered by an agreement are employees for FICA, but their services may still be excepted for other purposes. Revenue Ruling 59-354 also continued to exclude council-member service and pay from income-tax-withholding employment and wages regardless of a section 218A agreement.

Ruling snapshot

• Question: Does a tribe's section 218A Social Security agreement determine tribal council members' employee status for income tax or retirement-plan purposes?
• Outcome: Advice given that the agreement changes FICA treatment only and does not control other tax classifications.
• Key authorities: IRC §§ 3121 and 3401; Social Security Act § 218A; Tribal Social Security Fairness Act; Rev. Rul. 59-354

Full text (IRS public release)

ID:       CCA_2019051716454532
UILC:     3121.04-00

Number: 201926011
Release Date: 6/28/2019
From:
Sent: Friday, May 17, 2019 4:45:45 PM
To:
Cc:
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Subject: Tribal Social Security Fairness Act question


Greetings ----------

You have asked whether an Indian tribe’s decision to enter into a 218A agreement and
elect social security coverage for its tribal council members, or not enter such an
agreement, affects the classification of those workers for other purposes such as
income tax and retirement plan purposes. I apologize for the delay in responding to
your question.

Section 3121(a) of the Federal Insurance Contributions Act (FICA) provides that the
term “wages” means all remuneration for employment. Section 3401 of the Internal
Revenue Code (the Code), pertaining to income tax withholding, provides a definition of
“wages” similar to that for FICA purposes. Section 3121(b) of the FICA provides that
the term “employment” means any service of whatever nature performed by an
employee, unless otherwise excepted. Section 3121(d)(2) defines “employee” as
including any individual who, under the usual common law rules applicable in
determining the employer-employee relationship, has the status of an
employee. Section 3121(d)(4) further defines “employee” as including any individual
who performs services that are included under an agreement entered into pursuant to
section 218 of the Social Security Act.

Rev. Rul. 59-354 concludes that the services performed by Indian tribal council
members do not constitute “employment”, and that the remuneration paid therefore
does not constitute “wages” for FICA or income tax withholding purposes. The revenue
ruling does not address whether Indian tribal council members are employees under the
usual common law rules; indeed, the assumption is that they are common law
employees because, in the absence of employee status, there would be no need for
guidance clarifying that their services are excepted from employment and their
remuneration does not constitute wages for FICA and income tax withholding
purposes. Moreover, the Service has concluded in informal advice that Indian tribal
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council members are common law employees for employment tax purposes. See e.g.,
CCA199906001, 1999 WL 65244; See also CCA 201119032, 2011 WL 1824503 (“It has
been the Service’s position that a taxpayer in his capacity as an elected tribal council
member is a common law employee for Federal employment tax purposes.”). To the
extent other sections of the Code utilize the same definition of common law employee,
tribal council members will be common law employees for purposes of those Code
sections.

The Tribal Social Security Fairness Act, Pub. L. 115-243 (the Act), was enacted on July
24, 2018. The Act added section 218A to the Social Security Act (42 U.S.C.
418a). Section 218A provides that “[t]he Commissioner of Social Security shall, at the
request of any Indian tribe, enter into an agreement with such Indian tribe for the
purpose of extending the insurance system established by this title to services
performed by individuals as members of such Indian tribe’s tribal council.” The Act also
amended section 3121(b) of the Code, adding a new subparagraph (22) stating that the
term employment does not include “service performed by members of Indian tribal
councils as tribal council members in the employ of an Indian tribal government, except
that this paragraph shall not apply in the case of service included under an agreement
under section 218A of the Social Security Act.” Additionally, the Act amended section
3121(d)(4) to include within the definition of “employee” any individual who performs
services that are included under an agreement entered into pursuant to section 218A of
the Social Security Act. Notably, section 2(c) of the Act provides that “[n]othing in this
Act or the amendments made by this Act shall be construed to affect application of any
Federal income tax withholding requirements under the Internal Revenue Code of
1986.”

We conclude that the Act does not affect an Indian tribal council member’s status as an
employee for any tax purpose other than FICA taxes. The Act adds section 3121(b)(22)
to provide that service performed by members of Indian tribal councils in the employ of
an Indian tribal government is excepted from employment for FICA purposes unless the
service is included under a section 218A agreement. Although services performed by
tribal council members not covered under a section 218A agreement are excepted from
employment for FICA purposes, the tribal council members are presumably common
law employees for other purposes, including for retirement plan purposes. Similarly,
Indian tribal council members who are covered under a section 218A agreement are
considered to be employees for FICA purposes, but their services may be excepted
from employment for other purposes. Indeed, Rev. Rul. 59-354 continues as good
authority for the proposition that services performed by such Indian tribal council
members are excepted from employment and remuneration for such services is
excepted from wages for income tax withholding purposes, irrespective of whether or
not an Indian tribe has entered into a 218A agreement.
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Please do not hesitate to let me know if I can be of further assistance in this matter.