EFFECTIVE DATE: July 23, 1979. FURTHER INFORMATION: The U.S. signed international social security agreements with Italy in 1973, with the Federal Republic of Germany in 1976, and with Switzerland in 1979. The Italian agreement has been through the congressional review process and became effective on November 1, 1978. The German agreement has also been through the congressional review process and became effective on December 1, 1979. The President sent the agreement with Switzerland to Congress on February 1, 1980. The agreements entered into with Italy, the Federal Republic of Germany, and Switzerland are consistent with the rules in this Program Policy Statement. As agreements become effective, SSA will notify the public of their availability in the Federal Register. The alien nonpayment provision, referred to in 8 of the Policy Statement, is in Regulations No. 4, section 404.460. CROSS-REFERENCES: Claims Manual sections 3700ff. State and Local Coverage Page No. State and Local Coverage-New Mexico-University of State and Local Coverage Commissioner's Ruling on State's State and Local Coverage-Wages- State and Local Coverage-Status Patients and Other Individuals in State and Local Coverage Commissioner's Ruling on State's State and Local Coverage Commissioner's Ruling on State's . 300 . 305 305 307 310 312 State and Local SECTIONS 209(b) and 218(i) and (t) (42 U.S.C. 409(b) and 418(i) and (t)) STATE AND LOCAL COVERAGE — NEW MEXICO—UNIVERSITY OF NEW MEXICO-WAGES 20 CFR 404.1026(a), 404.1027(b) and 404.1275 SSR 76-22c STATE OF NEW MEXICO v. WEINBERGER, 517 Fed. 2nd 989 (10th Cir. 1975), cert. denied 423 U.S. 1051 (1976) Pursuant to section 218 of the Social Security Act, the Secretary, HEW, affirmed an assessment made against the State of New Mexico for contributions due on the basis that payments made by the University of New Mexico to employees absent on sick leave were not payments on account of sickness but continuations of salary. Such payments are not excludable as wages under section 209(b) of the Act. The Court of Appeals, in holding the Secretary's decision not unreasonable, Held that the Secretary has authority to interpret the meaning of "wages" within the state and local employment sector. Where identical treatment to that given in the private employment sector is not practicable, his interpretation may differ with that rendered by the Internal Revenue Service, pursuant to its regulations, regarding similar payments made to private employees. BARRETT, Circuit Judge: After duly exhausting all available administrative remedies, the State of New Mexico (State) commenced this action in the district court pursuant to 42 U.S.C. § 418(t) seeking a redetermination of the correctness of an assessment made by the Commissioner of Social Security, a delegate of the defendant, against the Regents of the University of New Mexico, in respect to Social Security contributions allegedly due and owing upon certain payments made by the University to an employee under its established sick leave plan. This appeal follows the Trial Court's entry of Summary Judgment in favor of the Secretary of Health, Education and Welfare (Secretary). The facts are not in dispute. In accordance with 42 U.S.C. §418 and §§5-7-1, et seq., N. M. S. A., 1953 Comp., the parties entered into an agreement for coverage of employees of the State and its political subdivisions, including the University of New Mexico, under the Social Security Act. The University entered into an agreement with the Public Employees Retirement Board, effective January 1, 1955. Since 1949, the University has had in effect a "plan" or system for determining payments to its employees who are absent from work because of sickness or accident disability. The amount of payments to each employee under the plan are recorded and separately stated on the University's books and records as "sick pay" and are made from a regular salary account. During 1968, Mr. Galloway, a University employee, was absent from work because of illness. As a non-exempt employee of several years' standing, he had earned under the Plan sufficient sick leave to cover the period of his illness and the University paid him $324.97 as sick leave payments. That amount was computed under the applicable sick leave policy as his regular straight-time rate of pay times the number of hours for which he qualified for sick leave under the policy. Mr. Galloway's hours of sick leave were duly posted to the "payroll time report" and the amount paid as sick leave was reflected on the related "payroll register." The University did not make a Social Security contribution with respect to these payments on the grounds that such payments were excluded from "wages" under 42 U.S.C. §409(b). The Social Security Administration thereafter assessed $28.60 in respect to these payments made to Galloway. On appeal the sole issue is whether the trial court erred in relying upon an unauthorized and improper interpretation made by the Secretary that the above payments did not qualify to be excluded from "wages" under 42 U.S.C. §409(b). The Social Security Act, at least insofar as it applies to private employers and their employees, is administered by the Internal Revenue Service (collecting funds from employers and employees) and the Department of Health, Education and Welfare (paying benefits). Both the rate of tax to be paid, and the rate of benefit to be received are keyed to "wages" earned by the employee. The term "wages" used in this computation is defined under both the "IRS statutes" (26 U.S.C. §3121) and under the "HEW statutes" (42 U.S.C. §409). Both statutes provide that "wages" shall not include "payments made to an employee under a plan on account of sickness."'1 While State employees are not covered by the Federal Insurance Contributions Act,2 26 U.S.C. §3101 et seq., the States are permitted to contract with HEW to establish analogous programs under 42 U.S.C. §418. Of importance to the instant dispute, 42 U.S.C. §418(e) (1) provides: (e) (1) Each agreement under this section shall provide (A) that the State will pay to the Secretary of the Treasury, at such time or times as the Secretary of Health, Education, and Welfare may by regulations prescribe, amounts equivalent to the sum of taxes which would be imposed by sections [3101 '26 U.S.C. §3121(a) (2) (B) provides, inter alia: (a) Wages - For purposes of this chapter the term "wages" means all remuneration for employment....: except that such term shall not include (2) the amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) made to, or on behalf of, an employee or any of his dependents under a plan or system established by an employer which makes provision for his employees generally... on account of — (B) Sickness or accident disability. ... 42 U.S.C. §409(b) is substantially the same. 'Employment by a State is excluded from the definition of "employment" by 26 U.S.C. §3121(b) (7). and 3111 of Title 26 I. R. C. of 1954] if the services of em- (B) that the State will comply with such regulations relating 42 U.S.C. §418(i) further provides: (i) Regulations of the Secretary [HEW] to carry out the purposes of this section shall be designed to make the requirements imposed on States pursuant to this section the same, so far as practicable, as those imposed on employers pursuant to this subchapter and [by Sections 3101 et seq., 6651(a) and 3504 of Title 26, 1. R. C. of 1954]. (Emphasis added). The instant controversy arises from the fact that in assessing contributions to be paid in by private employers the Commissioner of Internal Revenue has construed the "sick pay" exclusion from "Wages" differently than has the Secretary of HEW in assessing public employers.' It is not disputed that the payment made here was made pursuant to a "plan or scheme," and hence if the interpretation issued by the Commissioner of Internal Revenue, supra, is controlling, the HEW assessment must be reversed. In summary, the State contends that the above interpretation made by the Social Security Administration is both irrelevant and unauthorized; that while "wages" are defined under both §§3121 and 409, the latter definition is relevant only for the purpose of determining entitle ment to benefits under §401; that it is made clear by 42 U.S.C. §418(e) (1) (A) that an employer's liability for contributions (either a private or public employer) is to be determined solely under §3121 of the I. R. C.; that the Secretary of HEW is not authorized to issue rulings under I. R. C. §3121 and has, in fact, been directed under 42 U.S.C. §418(i) to conform his regulations- as to the requirements to be placed on the States-to those of the Commissioner of Internal Revenue; and that to sustain the Secretary's interpretation would be to allow inconsistent tax policies to co-exist, discriminating between private and public employees when Congress clearly intended them to be treated equally and uniformly. Rev. Rul. 65-275(1965) simply held that payments for earned sick leave made to an employee for periods of absence from work on account of illness pursuant to a plan or system of the type described in §3121(a) (2) of the F.I.C.A. are excluded from "wages" and are not subject to the taxes imposed under that Act. SSR 72-56 (1972), on the other hand, held that even if there exists an established sick leave plan, payments under such a plan by a State employer would be treated as "wages” under the Social Security Act unless it is shown in addition that the State has statutory or other legal authorization to make payments to employees solely on account of sickness (as distinguished from authorization to merely continue salary payments during periods of absence due to illness). |