How the Student FICA Exemption Works

The Federal Insurance Contributions Act, or FICA, mandates contributions from both employees and employers to fund Social Security and Medicare. These payroll taxes apply to most employment situations across the United States. A specific exception exists for students who work at the educational institution where they are also enrolled. This provision, found in Internal Revenue Code Section 3121, exempts certain student wages from these taxes, recognizing that their employment is secondary to their primary purpose of education.

Determining Eligibility for the Exemption

The primary factor in determining eligibility for the student FICA exemption is whether the individual’s relationship with the institution is predominantly that of a student rather than an employee. This determination relies on a “facts and circumstances” test outlined by the IRS. The core of this test is that the services performed by the student must be “incident to and for the purpose of pursuing a course of study.”

To meet this standard, the individual must be employed by the same school, college, or university where they are enrolled and regularly attending classes. The employer must be the educational institution itself or an affiliated organization that is controlled by the institution. Working for an off-campus company, even if the job is related to one’s field of study, does not qualify for this specific exemption.

IRS guidance in Revenue Procedure 2005-11 provides a safe harbor for institutions to follow. Under these guidelines, a student is exempt if they are enrolled at least half-time, a status defined by the educational institution. For undergraduate students, this often means carrying a minimum of six credit hours during an academic semester, while for graduate students, it might be four or five credit hours. The exemption can also apply during academic breaks of five weeks or less, provided the student was eligible on the last day of the preceding term and is eligible to enroll in the following term.

A special consideration exists for students in their final semester. If a student is enrolled in fewer than the required half-time hours but is taking all the courses needed to complete their degree requirements, they can still qualify for the exemption. This acknowledges that a student’s final course load may be lighter.

Situations Where the Exemption is Inapplicable

The exemption does not apply if an individual is considered a “career employee.” This refers to someone whose job is their main focus and who may be eligible for employee benefits like retirement plans or paid vacation. For these individuals, any academic coursework is secondary to their professional role.

Certain professional roles within an academic or medical setting are explicitly excluded. The IRS has clarified that medical residents are not considered students for the purpose of this exemption; they are viewed as employees engaged in professional training. A Supreme Court ruling affirmed this position. Similarly, postdoctoral fellows and research associates are categorized as employees, as their work is considered a professional appointment rather than part of a course of study.

The exemption also does not apply during extended breaks. While work during short academic breaks of five weeks or less is covered, employment during a longer break, such as a summer break exceeding five weeks, is subject to FICA taxes if the student is not enrolled in classes for that period.

Process for Claiming a Refund

If a student determines that FICA taxes were incorrectly withheld from their pay, the first step is to contact the employer who made the error. The student should request a direct refund of both the Social Security and Medicare taxes that were erroneously collected.

If the employer is unable or unwilling to provide a refund, the student must then file a claim directly with the IRS. This is accomplished by submitting IRS Form 843, “Claim for Refund and Request for Abatement.” It is important to file a separate Form 843 for each tax year a refund is being claimed.

When completing Form 843, the student will need to provide specific information. This includes the tax period in question, the type of tax (employment), and the dollar amount of the refund being claimed. The amounts for Social Security and Medicare taxes incorrectly withheld can be found in boxes 4 and 6 of the Form W-2 provided by the employer.

A detailed explanation for the refund request is also required. The student must attach a statement explaining that they were a student exempt from FICA taxes and that the employer has not provided a refund. The student should also attach a copy of their Form W-2 and any documentation from the employer denying the refund request. The completed form and attachments are then mailed to the IRS service center indicated in the form’s instructions.