GM 17-033

Tribal Social Security Fairness Bills Introduced

On June 7, 2017, Senators Cantwell (D-WA) and Thune (R-SD) introduced a long-awaited solution to the inequitable treatment of tribal council members as S 1309 “The Tribal Social Security Fairness Act”. S 1309 would modify Section 218 of the Social Security Act to permit tribal governments to enter into agreements, in the same way that state and local governments do, to elect to extend Social Security and Medicare benefits to tribal council members. The following day, Representatives Reichert (R-WA), Kilmer (D-WA), DelBene (D-WA) and Cole (R-OK) introduced the companion bill in the House as HR 2860.

The press release for The Tribal Social Security Fairness Act underscored the lack of access to Social Security retirement as particularly poignant: “Tribal populations are at a significant disadvantage in preparing for retirement.” Sen. Cantwell stated, “It is an injustice that due to a 60-year-old flawed interpretation of the tax code, [tribal council members] do not have the same access to Social Security as all other Americans.” Sen. Thune elaborated, “This is a good-government bill that would put tribal governments on a level playing field with their non-tribal counterparts by giving them the option to pay into and receive benefits from the Social Security program, just like nearly every other working American is already able to do.”

The Social Security Act of 1935 and the Federal Insurance Contribution Act (FICA) impose certain taxes (Social Security and Medicare taxes) on employment relationships. These employment taxes apply to governmental employers differently than private employers. The Social Security Act originally exempted state and local governments from FICA tax. The exemption of state and local governments was based upon concerns that the federal government lacked constitutional power to impose the taxes on state and local governments. In 1950, Congress amended the Act to allow states to elect to provide coverage for public employees. Under so-called “Section 218” plans, states could elect FICA coverage for designated categories of employees. Before 1991, state and local government employees who were not covered by a Section 218 plan were excluded from Social Security coverage. After 1991, state and local government employees were included in Social Security unless they were either covered by a Section 218 plan or were members of a qualified public retirement system.

The Internal Revenue Service (IRS) does not treat Indian tribes as governments for purposes of FICA. States were defined by the Act to include “instrumentalities of a State… one or more political subdivisions of a State or… a State and one or more of its political subdivisions.” The IRS has successfully argued that FICA applies to tribes, but that in applying FICA to tribes, they cannot be treated as states because FICA does not expressly reference tribes in the definition of a “state.” Therefore, because tribes are not treated like states, tribes cannot elect coverage for specific classes of employees under a Section 218 plan. Tribes likewise cannot decide whether Social Security coverage should apply to tribal workers through adoption of qualified tribal retirement plans.

Similarly, the rules relating to the classification of public or elected officials for employment tax purposes has also been different, and confusing, as between state and local governmental employers and tribal governmental employers. In 1959, the IRS sought to clarify the treatment of tribal elected officials. The IRS ruled that amounts paid to tribal council members for their services are not subject to FICA (Social Security and Medicare) taxes or income tax withholding (although they are includible in taxable income). Rev. Rul. 59-354, 1959-2 C.B. 24. The ruling unfortunately did not clarify employee classification issues and has created a patchwork of uneven and uncertain interpretation of how or whether FICA applies to appointed tribal officials, elected tribal officials, committee or commission members, and so on.
What is clear, however, is that Rev. Rul. 59-354 has made tribal council members ineligible for Social Security benefits with respect to their tribal council service. Because amounts paid to tribal council members are not subject to FICA taxes, they are receiving no credits toward Social Security and Medicare benefits while their state and local counterparts are contributing to, and accessing, Social Security benefits.

Tribes and tribal organizations have been seeking an answer to this problem with Treasury, IRS and the Social Security Administration (SSA) for a number of years. The IRS Indian Tribal Governments division has looked into an administrative resolution over the past several years, including directed interagency meetings between Treasury, IRS and SSA. Unfortunately, the agencies concluded that there was not an administrative resolution and that a legislative fix was necessary. Treasury and IRS, in fact, informed Congressional representatives of the issue and the need for legislative answers. The Tribal Social Security Fairness Act is just such a fix and would remedy decades of inequitable treatment of tribal citizens’ access to the Social Security system.

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