Political Subdivisions
& Other Entities
John P. Fox
Social Security Administration
Office of General Counsel, Region VII
*Not an official Social Security publication.
Please consult the primary sources referenced in this presentation.
Political Subdivisions
& Other Entities
part I
terminology
questions
part II
common issues
questions
~end~
Part I—Terminology*
Social Security Act (1935)
Social Security Act (1935)
Section 218 (1951)—State and SSA may agree to
extend Social Security to “services performed by
individuals as employees of [the] State or any
political subdivision thereof”
Social Security Act (1935)
Section 218 (1951)—State and SSA may agree to
extend Social Security to “services performed by
individuals as employees of [the] State or any
political subdivision thereof”
(b)—“‘political subdivision’ includes an
instrumentality of (A) a State, (B) one or more
political subdivisions of a State, or (C) a State
and one or more of its political subdivisions”
States
political subdivisions
instrumentalities
States
political subdivisions
instrumentalities
integral parts
or components
States
political subdivisions
instrumentalities
integral parts
or components
State
political subdivision
+instrumentality
integral part
State
political subdivision
+instrumentality
integral part
State
political subdivision
+instrumentality
integral part
Section 218(b)—“includes an instrumentality of
(A) a State, (B) one or more political
subdivisions of a State, or (C) a State and one or
more of its political subdivisions”
State
political subdivision
+instrumentality
integral part
20 C.F.R. § 404.1202—“A separate legal entity of
a State which usually has specific governmental
functions. The term ordinarily includes a
county, city, town, village, or school district, and
in many States, a sanitation, utility,
reclamation, drainage, flood control, or similar
district.”
determination is based on state law
State
political subdivision
+instrumentality
integral part
Section 218 lets States request coverage for
“services performed by individuals as employees
of [the] State or any political subdivision
thereof”
political subdivisions require their own
Section 218 modifications
State
political subdivision
+instrumentality
integral part
State
political subdivision
+instrumentality
integral part
Section 218—
subset of political subdivision
instrumentality “of” the State, etc.
political subdivision with one gov’t function
State
political subdivision
+instrumentality
integral part
Handbook—“independent legal entity with
power to hire, supervise, and discharge its own
employees, and generally to sue and be sued in
its own name, to contract, [and] to hold and
convey real and personal property”
instrumentalities, like other political
subdivisions, require their own mods
State
political subdivision
+instrumentality
integral part
State
political subdivision
+instrumentality
integral part
unit of a State, political subdivision, or
instrumentality that is not itself a political
subdivision or instrumentality
an integral part is part of a political
subdivision; look to that entity to
determine Social Security coverage
State
political subdivision
+instrumentality
integral part
State
political subdivision
+instrumentality
integral part
coverage errors—
easy to misclassify political subdivision or
instrumentality as an integral part
changes in law or interpretation of the law
State
political subdivision
+instrumentality
integral part
oddities
joint venture—multiple political subdivisions
create an entity to carry on some government
function
is it a political subdivision?
who is the employer?
State
political subdivision
+instrumentality
integral part
oddities
interstate instrumentality—instrumentality
organized by multiple states
treat as a state; requires an original agreement
other definitions—
IRS and other federal agencies
States—
political subdivision vs.
instrumentality
multiple definitions?
Questions?
Part II—Common Issues†
issue 1—political subdivision or integral part?
issue 2—who is the employer?
issue 3—is the entity public or private?
issue 1—political subdivision or integral part?
The head librarian at a city library asks whether
he should withhold FICA taxes on employee
wages. His library has always paid into Social
Security, but other city libraries do not.
The city is listed in the State’s Agreement, but the
city library is not.
issue 1—political subdivision or integral part?
issue—is the library a political subdivision, or is
it an integral part of the city?
answer may determine coverage
determination is based on state law
issue 1—political subdivision or integral part?
3 definitions of “political subdivision”—
(1) separate legal entity of a State with specific
governmental functions;
(2) a county, city, town, village, or school district,
etc..; or
(3) (instrumentality) independent legal entity
with power to hire, supervise, and discharge its
own employees, and generally to sue and be
sued in its own name, to contract, [and] to hold
and convey real and personal property
issue 1—political subdivision or integral part?
resources—
(1) precedents
(2) authorizing statutes, ordinances, etc..
(3) court decisions
(4) State attorney general opinions
(5) information from the entity
(6) entity website
(7) newspaper articles
and so on . . .
issue 1—political subdivision or integral part?
watch for—
changes in the enabling statutes
board of trustees/directors
dissimilar entities with similar names
issue 1—political subdivision or integral part?
The head librarian at a city library asks whether
he should withhold FICA taxes on employee
wages. His library has always paid into Social
Security, but other city libraries do not.
The city is listed in the State’s Agreement, but the
city library is not.
answer?
issue 2—who is the employer?
You must determine whether workers at a city
bus terminal are covered by Social Security. The
city receives coverage under the State’s
Agreement but the bus terminal is not listed in
any modification.
You are confident the bus terminal is a political
subdivision, but the staff who work there are
hired through the city’s civil service program and
are paid by the city.
issue 2—who is the employer?
issue—are the workers employees of the bus
terminal or the city?
issue may determine Social Security coverage
issue 2—who is the employer?
identity of employer is a question of federal law
Section 218(b)(3)—“‘employee’ includes an officer
of a State or political subdivision”*
otherwise, agency determines “employer” based
on common-law rules
common-law rule—employer is the person who
can tell the worker what to do and how to do it
issue 2—who is the employer?
You must determine whether workers at a city
bus terminal are covered by Social Security. The
city receives coverage under the State’s
Agreement but the bus terminal is not listed in
any modification.
You are confident the bus terminal is a political
subdivision, but the staff who work there are
hired through the city’s civil service program and
are paid by the city.
answer?
issue 3—is the entity public or private?
An economic development agency pays into
Social Security but is not listed in the State’s
Section 218 agreement. The employees are
members of a state retirement system. However,
the entity is organized under the state’s ordinary
non-profit laws and receives some funding from
private sources.
issue 3—is the entity public or private?
issue—is the agency public or private?
Section 218—State and SSA may agree to
extend Social Security to—“services performed
by individuals as employees of [the] State or any
political subdivision thereof”
SSA cannot approve a modification that
requests coverage for a private entity
issue 3—is the entity public or private?
source of law?
IRS Revenue Rulings 57-128 and 65-26—
• government purpose or function?
• private interests, or government owned?
• control and supervision vested in public
authority?
• statutory or other authority necessary for the
creation or use?
• degree of financial autonomy and source of
operating expenses?**
public
police
department
city
school district
soil
conservation
district
city water
department
independent
dependent
economic
development
council
????
for-profit
corporation
private
issue 3—is the entity public or private?
An economic development agency pays into
Social Security but is not listed in the State’s
Section 218 agreement. The employees are
members of a state retirement system. However,
the entity is organized under the state’s ordinary
non-profit laws and receives some funding from
private sources.
answer?
final thoughts—
don’t assume that what happened in 1955
holds true today
when in doubt, contact SSA
summary—Part I—
four basic entities—State, political
subdivision, instrumentality, integral part
political subdivisions are basic unit of
coverage
political subdivisions are independent legal
entities; integral parts are not
summary—Part II—
political subdivision or integral part?
who is the employer?
public or private?
when in doubt, contact SSA
Questions?
~end~
[email protected]