Student Worker Tax Exemptions

Student Worker Tax Exemptions

Students are not automatically exempt from having to pay taxes. Your earnings are subject to both federal and state income taxes. However, certain student workers will be exempt from Social Security tax and Medicare tax (FICA taxes) withholding. An individual who is a half-time undergraduate student or a half-time graduate student who is not considered a professional, career or full time employee will qualify for the student FICA exemption with respect to services performed at or for institutions of higher education in which they are enrolled.

In order to have the status of a student, an employee’s services must be incident to and for the purpose of pursuing a course of study. Whether an employee’s services are incident to and for the purpose of pursuing a course of study is determined on the basis of the relationship of the employee with the organization for which such services are performed as an employee. The educational aspect of the relationship, as compared to the service aspect, must be predominant in order for the employee’s services to be incident to and for the purpose of pursuing a course of study.

The student FICA exemption applies to qualified student wages earned during a term in which the student is enrolled, and who satisfy the following half-time semester or summer session standards:

Undergraduate Students                Graduate Students
 
6 credit hours per semester            6 credit hours per semester
 
3 credit hours per summer              3 credit hours per summer
 
                                                        1 credit hour per
                                                        Dissertation Research
 

If a student is in the last semester of a course of study and enrolled in the number of hours needed to complete the degree program, the student will be eligible for the FICA exemption.        

Employment during Summer and Winter Breaks

The student FICA exemption does not apply to services performed by a student during school breaks of more than five weeks. Accordingly, summer employment will not be exempt from FICA taxes unless the student is enrolled and attending class in accordance with the half-time standards stated above for the summer session, and, the break in enrollment is not longer than 5 weeks. Services performed between the fall and spring semester are generally eligible for the FICA exemption. The FICA tax exemption applies to employment during school breaks of 5 weeks or less, as long as the student is eligible for the exemption on the last day of classes in the academic period preceding the break and is eligible to enroll in classes following the break. The last day of classes will be the last day of final exams for each semester.

Teaching and Graduate Assistants

The law specifically distinguishes teaching assistant and graduate assistant positions which qualify for the FICA exemption provided that the above half-time standards are satisfied. The FICA exemption also applies to students enrolled on less than a half-time basis provided the student requires less than the above standards to complete the degree program.

Postdoctoral Students/Fellows, Medical Residents/ Interns

The law specifically disqualifies postdoctoral students, postdoctoral fellows, medical residents, and medical intern positions as not being eligible for the student FICA exemption because the services performed are not incident to or for the purpose of pursuing a course of study.

Exemption not Available for Certain Employees:

During any semester or summer where a student worker has multiple appointments and at least one position is described below as a professional, career, or full time employee, or, receives certain employee benefits, FICA taxes will be withheld from all earnings, and no exemption will be allowed. Each semester, all facts and circumstances may be reevaluated to determine the proper FICA tax withholding or exemption.  

Professional Employees

A professional employee is an employee whose work: (1) requires knowledge of an advanced type in a field of science or learning, (2) requires the consistent exercise of discretion and judgment, and (3) is predominantly intellectual and varied in character. Services performed by a “professional employee” cannot generally be considered to be incident to and for the purpose of pursuing a course of study, and thus not eligible for the student FICA exemption.

Career or Full Time Employees

A “full-time employee” is ineligible for the student FICA exemption since the services of a full-time employee are not incident to and for the purpose of pursuing a course of study. Whether an employee is a full-time employee is based on the employer’s standards and practices, except that an employee whose normal work schedule is 40 hours or more per week is always considered a full-time employee.

Employees Eligible to Receive Employee benefits

Services performed by an employee who receives or is eligible to receive employment benefits such as vacation, sick leave, paid holidays, or eligible to participate in retirement plans, cannot generally be considered to be incident to and for the purpose of pursuing a course of study.

Links to IRS regulations and notices regarding the Student worker FICA exemption:

Internal Revenue Service Notice: http://www.irs.gov/irb/2005-02_IRB/ar16.html

IRS Revenue Procedure:  2005-11, http://www.irs.gov/pub/irs-drop/rp-05-11.pdf

Final Regulations: http://www.irs.gov/pub/irs-regs/td_9167.pdf