Student Exemption
On December 21, 2004, the Internal Revenue Service (IRS) issued new guidelines setting forth the standards to use to determine whether student employees are eligible for the "safe harbor" student FICA Exemption. These guidelines were issued in Revenue Procedure 2005-11 (Rev. Proc. 2005-11) for services performed on or after April 1, 2005. This revenue procedure modifies the "safe harbor" FICA exemption standards provided in Rev. Proc. 98-16. Illinois State University follows the IRS rules in determining a student's exemption from FICA withholding. Following are the highlights of the IRS revenue ruling and Illinois State University procedures.
Student Status - General Rule
In order to have the status of a student, the employee must be enrolled and regularly attending classes in pursuit of a course of study. In addition, the employee's services must be incident to and for the purpose of pursuing a course of study. The educational aspect of the relationship between the employer and the employee must be predominant in order for the employee's services to be incident to and for the purpose of pursuing a course of study.
Applicable Credit Hour Standards for Undergraduate and Graduate Students
An individual who is a half-time undergraduate student or a half-time graduate or professional student will qualify for the Student FICA exception under this revenue procedure with respect to services performed at or for institutions of higher education in which they are enrolled.
At Illinois State University the half-time student qualifications are:
| Student | Fall Semester | Spring Semester | Summer Sessions |
|---|---|---|---|
| Undergraduate | 6 hours | 6 hours | 3 hours |
| Graduate | 5 hours | 5 hours | 3 hours |
Students Working at the Beginning or End of an Academic Term
The IRS states in the revenue procedure that a pay period that falls fully or partially within an academic term will be eligible for the FICA exemption. At Illinois State University, if the academic term begins at any point within a pay period, the entire period is considered for the exemption, not just the days actually within the term.
Students in Final Semester
A student in the final semester required to complete the requirements for obtaining a degree, certificate, or other educational credentials offered by the institution, shall be deemed to meet the half-time threshold, regardless of the number of credits. For Graduate Student employee classes - When completing a Course Load Waiver Form (PERS 938), Code "B" under Rationale should be used if the student is in his/her final semester. For Undergraduate Student employee classes - The Request for Student Employment Exception will be utilized to identify students in their final semester.
Full-time Employee Not Eligible for Exemption
Services provided by a full-time employee are ineligible for the student FICA exception. The final regulations provide that full-time services are not incident to and for the purpose of pursuing a course of study. However, whether an employee is full-time is based on the employer's standards and practices. Except that employees whose normal work schedule is 37.5/40 hours or more a week are considered full-time employees. But, the final regulations provide that an employee's work schedule on an occasional basis or during an academic break are not considered in determining whether the employee's normal work schedule is 40 hours or more per week.