Exemption from social security (FICA) taxes

Most people who earn employee wages in the United States must have Social Security (FICA) taxes deducted from their pay.  FICA taxes are comprised of Old Age Tax, which is 6.2% of taxable gross earnings, and Medicare, which is 1.45% of taxable gross earnings.  Some employees may qualify for exemption from FICA taxes during part or all of a calendar year by being in at least one of the following two categories of exemption:  the student FICA exemption or the exemption for non-U.S. residents.

Student FICA Exemption

In accordance with Internal Revenue Code 3121(b)(10), also referred to as the American Student Rule, student employees of Indiana State University are exempt from FICA taxes on earnings under certain conditions. 

To qualify for this exemption, a student must be enrolled in at least half-time credit hours and regularly attending classes, or in the final semester and completing degree requirements.  In addition, the services performed must be “incident to and for the purpose of pursuing a course of study”.  Graduate assistantships and jobs offered through Student Employment Programs are examples of jobs at Indiana State University meeting this criterion.

The Payroll Office determines eligibility for the FICA exemption by comparing payroll records to enrollment and graduation records on each pay cycle for Student, Monthly, Monthly Supplemental, and Summer Academic Payrolls.  Those students whose enrollment is less than half-time and who have not applied for graduation at the end of the current semester will be subject to FICA taxes.

The following table shows the minimum number of credit hour enrollment an Indiana State University student must have in order to qualify for the FICA exemption:

During periods when classes are not in session (e.g., semester break, spring break, etc.) and the break is five weeks or less, eligibility for the FICA exemption will be determined by enrollment status during the current or most recent semester. 

Example A:  A student employee who was enrolled in nine credit hours during the fall semester, and is working during the break between fall and spring semesters remains eligible for the FICA exemption due to his fall semester enrollment.  Once the spring semester begins, however, he enrolls in only three credit hours and therefore becomes ineligible for the FICA exemption.

Example B:  A student employee who was enrolled in thirteen credit hours during the spring semester ending May 6 remains on campus for the summer and continues working.  She is enrolled in three credit hours during Summer Session 4A, a four-week course, which begins June 6 and ends July 1.  She is eligible for the FICA exemption during the period between Spring and Summer Sessions (based on Spring Semester enrollment and because the break between sessions is five weeks or less). She is no longer eligible for the exemption with the pay period after July 1 when she is not enrolled. She becomes eligible for the exemption again when the Fall Semester begins as long as she is enrolled in six or more credit hours for Fall.

Example C-1:  A student employee is enrolled in five credit hours during spring semester, and is also finishing class work for “Incompletes”.  He is not eligible for the FICA exemption.

Example C-2:  Another student employee is enrolled in only five credit hours during spring semester, but is completing degree requirements and has applied for graduation in May.  She is eligible for the FICA exemption.

Exemption for Non-U.S. Residents

Internal Revenue Code 3121(b)(19) exempts F-1 and J-1 visa holders from FICA taxes on earnings for services performed for Indiana State University, provided they are non-residents for tax purposes and in compliance with the requirements of their visa.  Non-resident status for tax purposes is determined by the length of time the F-1 or J-1 visa holder has been in the United States.

Example A:  A student employee holding an F-1 visa arrived in the United States for the first time in August 2014.  His residency status in 2015 is “non-resident” and he is exempt from FICA during 2015.

Example B:  A student employee holding an F-1 visa arrived in the United States for the first time in August 2007.  He returned to his home country for a year in 2010-11, then returned to the United States with an F-1 visa in January 2012.  He has remained in the Unites States since then.  His residency status in 2015 is “resident for tax purposes”, although still a non-resident for immigration purposes, and he is subject to tax withholding as if he were a resident.  Although he is no longer exempt from FICA because of his residency status, he may be exempt by qualifying for the student FICA exemption.