Student Employee FICA Exception
Note: This policy is intended for the purpose of informing University of Illinois System employees and other U of I System-related individuals about relevant tax issues. This policy does not constitute legal or tax advice. Individuals should consult with their attorneys or tax professionals for advice on personal issues.
Overview
Internal Revenue Code (IRC) §3121(b) provides an exception for students from the Federal Insurance Contributions Act (FICA), which consists of Social Security and Medicare withholdings. Revenue Procedure (Rev. Proc.) 2005-11 provides a safe harbor where certain students can qualify for the Student FICA exception.
The Student FICA exception applies to students enrolled during school breaks of five weeks or less providing the student was eligible for the exception on the last day of classes or examinations prior to the break, and is eligible for enrollment for the first academic period following the break. The Student FICA exception includes the university's winter and spring breaks.
Students who are not enrolled in classes during school breaks of more than five weeks do not qualify for the Student FICA exception.
Under these criteria, foreign students who are resident aliens for tax purposes also qualify for the Student FICA exception.
In general, undergraduate student employees who are registered at least half-time qualify under the safe harbor provisions provided by Rev. Proc. 2005-11. However, since graduate assistants are eligible for certain benefits, graduate assistants do not qualify for the safe harbor. Students who do not meet the criteria under the safe harbor (Rev. Proc. 2005-11) may still qualify for the Student FICA exception under a consideration of all facts and circumstances as outlined in Federal Treasury Regulation (Reg.) § 31.3121(b)(10)-2.
Safe Harbor
A student qualifies for the safe harbor provided by Rev. Proc. 2005-11 and the Student FICA exception on university earnings if the student meets allof the following criteria. The student must:
- Be registered for at least half-time, comprised of a minimum of:
- Six credit hours for fall and spring terms at UIC, UIS, or UIUC; and
- Three credit hours for the summer term at UIC or UIS; or
- Summer session II at UIUC.
- Not be a full-time employee.
- Not be a professional employee. A professional employee is defined by Reg. §31.3121(b)(10)-2(d)(3)(v)(B) as an employee whose work: (i) consists of advanced or specialized knowledge, (ii) requires consistent discretion and judgment, and (iii) is intellectual or varied rather than routine, manual, or physical. Another indication of a professional employee is if a license (other than a normal driver's license) is required.
- Not be eligible for employment benefits (unless the benefits are mandated under state law). Employment benefits are defined by Reg. § 31.3121(b)(10)-2(d)(3)(v)(C) as (i) paid vacation, sick leave, or holiday benefits, (ii) IRC §§ 401(a), 403(b), or 457 retirement plans or arrangements with employer match, (iii) IRC §117 (reduced tuition; however, tuition reduction benefits provided to graduate teaching and research assistants under IRC §117(d)(5) are excluded), and (iv) IRC §§ 79 (life insurance), 127 (qualified educational assistance), 129 (dependent care assistance programs), and 137 (adoption assistance).
Rev. Proc. 2005-11, Section 3 provides that the safe harbor, as described above, does not apply to postdoctoral students and postdoctoral fellows.
Regulations
Reg. §31.3121(b)(10)-2 provides that the educational aspect of the relationship between the student and the university must be predominant over the service aspect. The educational aspect is generally evaluated by comparing the employee's course workload relative to full-time enrollment.
The following conditions must be considered when evaluating the service aspect:
Professional Employee Status
Professional employee status suggests that the service aspect is predominate. The following indicate professional employee status:
- Work consists of advanced or specialized knowledge;
- Work requires consistent exercise of discretion and judgment; and
- Work is intellectual and varied, rather than routine, manual, or physical.
In addition, professional licensing further suggests that the service aspect dominates.
Employee Benefits
Eligibility for employee benefits is another factor in evaluating the service aspect. The relevant benefits are listed above in the eligibility requirements of Rev. Proc. 2005-11. Health insurance is not considered a benefit for this purpose. The weight given to different benefits varies. Greater weight is given for retirement benefits and benefits provided to employees in non-student positions. Less weight is given for benefits mandated by state law and dependent care.
Example 8 in Reg. §31.3121(b)(10)-2(e) shows how this balancing of factors works in the case of a Graduate Assistant.
- Facts:
- Work as a graduate assistant is normally 20 hours per week.
- Works under rules and plans provided by professors.
- Receives compensation for work and is eligible for IRC §§ 403(b) and 117 benefits.
- Registered as a full-time student.
- Result:
- Safe harbor of Rev. Proc. 2005-11 does not apply due to benefits.
- Balance in favor of student exempt from FICA.
- Ratio of full-time student to half-time employment was a major factor.
If the determination cannot be made under the Safe Harbor, additional information must be provided to and reviewed by University Payroll & Benefits (UPB) in order to make this determination. Contact UPB throught the University Payroll & Benefits Service Portal
Helpful Links
Additional information on the Student FICA exception is detailed in Rev. Proc. 2005-11
and Federal Treasury Regulation §31.3121(b)(10)-2
.
Last Updated: November 21, 2016
