Publication 963 (Rev. October 1997) - Uncle Fed's Tax*Board

Commonly Asked Questions
NOTES
STATE
16. I am the mayor of a small town. Employees of the town have to pay
Social Security taxes. I just learned that a neighboring town stopped
paying Social Security taxes on its employees when it created a
pension plan for them. Can we do this?
Prior to July 2, 1991, the only way a local government (city, village, county, etc.)
could cover its employees under Social Security was for the State to include it under
the State’s Section 218 Agreement with SSA. The agreement extended Social
Security coverage to government employers at the State’s request. Social Security
coverage obtained in this manner cannot be terminated.
First, check with your State Social Security Administrator to determine whether
your city is covered by a Section 218 Agreement. If you do not have a Section 218
Agreement, it may be possible to stop paying mandatory Social Security if you
create a qualified public retirement system. However, employees hired after
March 31, 1986 are mandatorily covered for Medicare.
SSA
17. I checked with the State Social Security Administrator and was told
that my town is covered for Social Security under the State’s Section
218 Agreement, and therefore, the coverage can’t be stopped. Why can
the other town stop its coverage?
Beginning July 2, 1991, most State and local government employees are mandatorily
covered under Social Security unless they are (1) already covered for Social
Security under a Section 218 Agreement or (2) are covered under a public
retirement system. For these employees covered mandatorily, coverage ceases if
the employer creates a public retirement system for them or places them under an
existing public retirement system. The retirement system has to meet the criteria set
forth in the Federal Employment Tax regulations.
18. How does an employee verify what Social Security Administration
shows on her/his earnings record?
SSA
SSA
An employee should request a Form SSA-7004 (Request for Earnings and Benefit
Estimate Statement). This form can be obtained from any Social Security office or
by calling 1-800-772-1213. There is no charge for this service.
19. What should an employee do if the earnings information on the
Personal Earnings and Benefit Estimate Statement (PEBES) is
incorrect?
If the employee has a question or disagrees with the information shown, the
employee should contact SSA at 1-800-772-1213.
20. If board members are paid nominal amounts, for example under $1,000
per year, must FICA be withheld?
IRS
Elected and appointed officials are generally considered employees of the public
entity they serve. You should withhold FICA taxes unless the official is a member
of a public retirement system that is not covered under a Section 218 Agreement.
However, any official elected or appointed to their position after March 31, 1986
is subject to Medicare-only withholding.
2-6 Federal-State Reference Guide (1997 Edition)