TOPIC: Board and Commission Members
OFFICE: State Auditor’s Office
QUESTION / ISSUE:
STATE: IN
DATE: 12/16/2013
Does your state treat board and commission members (who may meet only an hour each month) as W-2
employees or 1099 contractors?
State
Alaska
Comments
Per guidance from the IRS, we were directed to treat board and commission members as
employees that would receive a W-2 rather than a 1099.
I know that the manner in which we in Alaska handled board members changed as a result of
information we received at a NASC or NASACT conference. We then reached out to the IRS
speaker and he provided us some additional information. I’ve included the email string below
in hopes that it might help.
From: Kim J Garnero
Sent: Tuesday, February 07, 2006 8:58 AM
To: Jan H Deyoung; Betty Fauber
Subject: [Fwd: RE: request of citation for appointed board members being employees]
Jan and Betty,
Below is the email I received from a long-time IRS employee, currently an FSLG (Federal,
State, Local Government specialist) when I asked for citation requiring employee-type tax
treatment of board and commission members.
While this may not seem authoritative, it is written by one of the individuals who audits states
for tax compliance, and he is clear in his judgment that board members of governments are
generally employees. In a recent teleconference with other states, we were the only state of
more than a dozen on-line that were not treating our board members as employees for tax
purposes. For these reasons, we have moved to treating board members who regularly
receive compensation as employees for tax purposes.
Kim Garnero
Director of Finance
-------- Original Message -------SubjectRE: request of citation for appointed board members being
:employees
Date:Tue, 06 Dec 2005 12:15:54 -0600
From:McLennan Raymond E <Raymond.McLennan@irs.gov>
To:'Kim Garnero' <kim_garnero@admin.state.ak.us>
Kim:
I have never seen an appointed board member of a government unit that was not an
employee. If in doubt the employee may submit a form SS-8 for a ruling from IRS. If you have
any other questions please contact your FSLG specialist Gary Petersen (907) 456-0317.
Thanks and additional information is below;
Public Officials
For employment tax purposes, federal statutes are relevant when determining employee
classification. Furthermore, for income tax withholding purposes, IRC §3401(c) states,
"the term employee includes an officer, employee, or elected official of the United States,
a State, or any political subdivision thereof." In other words, an officer, employee, or
elected official of a state or local government is an employee for income tax withholding
purposes. For purposes of FICA taxes employee status is determined under the common
law control test unless a Section 218 Agreement is in place and specifically covers the
position.
A critical factor for consideration in an employee status determination is whether there is
a state constitution or statute establishing a position. State statutes should be reviewed to
determine whether they establish enough control for the individual to be classified as an
employee under the common law test. Statutes may state that a specific position is that of
a public official, in which case there is likely to be a right to control sufficient to make
the individual an employee. Statutes specify the duties of a public office and generally
establish the officer's superiors and subordinates, if any. Statutes establish an official's
term of office and sometimes the compensation. They may require that a public official
take an oath of office. Statutes often establish general and specific penalties for
dereliction of duty. For instance, members of boards who are paid for each meeting they
attend may face termination if they fail to attend a certain number of meetings.
A public official has authority to exercise the power of the government and does so as an
agent and employee of the government. For this reason, the Supreme Court has held that
public officials are employees. A public official performs a governmental duty exercised
pursuant to a public law. Buckley v. Valeo, 424 U.S. 1, 141 (1975). A public office is a
position created by law, holding a delegation of a portion of the sovereign powers of
government to be exercised for the benefit of the public. Metcalf & Eddy v. Mitchel,
269 U.S. 514 (1926).
The IRC does not define the term "public official", but Regulation §1.1402(c)-2(b) gives
the following examples with respect to the application of self-employment tax to public
officials in specific circumstances: a mayor, member of a legislature, county
commissioner, state or local judge, justice of the peace, county or city attorney, marshal,
sheriff, constable, or a registrar of deeds. Other examples include tax collectors,
taxassessors, road commissioners, and members of boards and commissions, such as
school boards, utility districts, zoning boards, and boards of health.
As an example of the degree of control under which a public official works, consider city
attorneys in State A. State statutes establish the position and define it as that of an officer
and employee. These statutes define the duties of the position: the city attorney is
required to direct all litigation in which the city is a party, including prosecuting criminal
cases; to represent the city in all legal matters in which the city or a city officer is a party;
to attend meetings of the commissioners, advise commissioners, mayors, etc., on all legal
questions, and approve all contracts and legal documents. A city manager appoints,
supervises and controls the work of the city attorney. The city attorney must take an oath
of office. These facts show the importance of state statutes in establishing a right of
direction and control of a public official to classify them as a common law employee.
For the same reason, elected officials are subject to a degree of control that typically
makes them employees under the common law. Elected officials are responsible to the
public, which has the power not to reelect them. Elected officials may also be subject to
recall by the public or a superior official. Very few appointed officials have sufficient
independence such that they will not be considered common-law employees. In any
event, elected officials are employees for income tax withholding purposes under section
3401(c).
Many other positions, such as teacher and school superintendent, are established by
statute. The duties of these positions like those of public officials are statutorily
established. The qualifications, training and policies, which they must observe and
enforce, are established by statue or statutorily established public bodies.
Raymond E. McLennan
Federal, State, Local, Government Tax Specialist
-----Original Message----From: Kim Garnero [mailto:kim_garnero@admin.state.ak.us]
Sent: Monday, December 05, 2005 6:01 PM
To: raymond.mclennan@irs.gov
Subject: request of citation for appointed board members being employees
Mr. McLennan,
We very much enjoyed your presentation for NASACT training audio
conference last week.
Could you please provide us with the IRS code location for the
requirement that we treat appointed board members as employees?
Thank you very much,
Kim Garnero
Director of Finance
Arizona
In Arizona, we treat them as employees due in large part to the state’s right to control what
will be done and how it will be done. Many act within specific parameters of legislation giving
them authority and sometimes instructions to operate.
Board and commission members, while part time and having a great deal of latitude, operate,
nonetheless, within certain constraints imposed by law, rule or appointment. Beyond normal
duties as may be prescribed by their post, board and commission members also have to
comply with statutory mandates like open meeting laws and, under some circumstances,
entitled to reimbursements for travel, subject to the same limitations imposed upon state
employees (but not necessarily state contractors, whose reimbursement rates are
established by contract (which often, but not always, conforms to state rates)).
Additionally, the following excerpts are from IRS Publication 963:
http://www.irs.gov/pub/irs-pdf/p963.pdf
“Public Officials
The term ―public official refers to someone who has authority to exercise the power
of the government and does so as an agent and employee of the government. The
Internal Revenue Code does not define the term ―public official, but Regulation
§1.1402(c)-2(b), explaining the applicability of self-employment tax, indicates that
holders of ―public office‖ are not in a trade or business and are therefore not subject
to self-employment tax. If self-employment tax is not applicable to the services, these
individuals are employees. This Regulation states that the performance of the
functions of a public office does not constitute a trade or business. An exception
applies for certain public officials paid solely on a fee basis (see Chapter 5).
Otherwise holders of public office are excepted from self-employment tax and are
presumed to be employees receiving wages. The regulations give the following
specific examples of positions that constitute ―public office:









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Governor
Mayor
Member of a legislature or elected representative (e.g., elective office)
County commissioner
State or local judge, or justice of the peace
County or city attorney, marshal, sheriff, constable
Registrar of deeds
Tax collector or tax assessor
Road commissioners
Members of boards and commissions, such as school boards, utility
districts, zoning boards, and boards of health”
“A statute may state that a specific position is that of a public official, in which case
there is likely to be a right to control sufficient to make the individual an employee.
Statutes may also specify the duties of a public office and generally establish the
officer's superiors and subordinates, if any. Statutes establish an official’s term of
office and sometimes the compensation. They may require that a public official take
an oath of office. Statutes often establish general and specific penalties for dereliction
of duty. For instance, members of boards who are paid for each meeting they attend
may face termination if they fail to attend a certain number of meetings.”
“Frequently Asked Questions
1) If board members are paid nominal amounts, for example, under $1,000 per year,
must social security and Medicare taxes be withheld?
Generally, yes. Elected and most appointed officials are employees of the public
entity they serve, and are generally subject to the withholding rules that apply to
other workers…“
Per IRS Publication 15-A:
Iowa
Iowa pays the board/commission member per diem via the payroll system and reports these
payments via the W-2.
Kansas
Kansas treats board and commission members as W-2 employees.
Minnesota
Minnesota treats them as 1099 contractors.
Nebraska
For those board members who receive a per diem for attending meetings, those per diems
are paid through payroll and reported on a W-2. Appropriate taxes are withheld.
Ohio
In Ohio, we actually pay them (PER the OHIO revised Code) through payroll for these
meetings. They are taxed and it is treated as earned wages. Therefore, they get a W-2.
Oregon
Oregon provides our board and commission members a W-2 when they are paid through our
payroll application. If they receive reimbursements (accountable or non-accountable plan)
and are paid through the state’s accounting application, they would receive a 1099-M if the
aggregate amount is $600 or more. It is one or the other and based on agency, board, or
commission practice.
Pennsylvania
Pennsylvania has recently changed to W-2 reporting in 2011. In years prior to 2011
payments were issued through finance and 1099s were issued.
South Dakota
South Dakota treats them as W-2 employees.
Texas
In Texas, we have board members who receive reimbursement for their travel expenses and
if that travel reimbursement is taxable, then the board members are usually issued W-2s. We
also have board members who receive a daily compensation rate for the meeting days and
those folks usually receive W-2s. On the other hand, some of the agencies with board
members handle these reimbursements differently. So we do it both ways.
Utah
We treat them as W-2 employees
Washington
Washington’s answer is: It depends.


Any member that is compensated (based on state law) for time in meetings are
treated as state employees. They are paid using the payroll system. Reporting on a
W-2.
Members that are not compensated (class one or others) but are reimbursed for travel
may be issued a 1099.
Here are our policies:
http://www.ofm.wa.gov/policy/25.30.htm#25.30.30 see 25.30.30.c
http://www.ofm.wa.gov/policy/10.70.htm see 10.70.00, 10.70.10, 10.70.20, 10.70.30
Wisconsin
W-2 employees.