FROM THE OFFICE OF PUBLIC AFFAIRS

To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

Today, Treasury and the IRS issued proposed regulations concerning the exception from FICA employment tax for students employed by the school, college or university where the student is pursuing a course of study. The proposed regulations expand upon existing regulations and guidance, including clarifying that whether an organization is a school, college or university is determined based on the primary function of the organization.  The proposed regulations also clarify that determination of whether employees are students for purposes of the exclusion is made by examining the individual’s employment relationship with the employer to determine if employment or education is predominant in the relationship. 

The regulations make conforming changes for purposes of Federal unemployment taxes, for which there is an identical exception. These rules have particular relevance in determining whether a medical resident providing services to a hospital is considered a student for employment tax purposes. 

In addition, the IRS released a notice suspending Revenue Procedure 98-16, which provided that students enrolled at least half-time at certain institutions of higher education qualify for the student FICA exception.  The notice proposes a new revenue procedure that is consistent with the proposed regulations and provides interim reliance.  Colleges and universities that have been relying on the safe harbor provided in Rev. Proc. 98-16 will generally be unaffected by this guidance.

Related Documents:

• The text of Notice 2004-12