Financial Administration

Student FICA Exemptions (G18A)

Revised April 12, 2012

Background

FICA (OASDI and Medicare) is a tax on earnings or wages. Where an employer-employee relationship exists, employers are required to withhold FICA from the earnings/wages of an employee and pay an additional contribution, subject to certain maximums. States are able to determine which state employees are subject to FICA coverage by entering into an agreement with the Social Security Administration called a "218 agreement." Prior to July 1, 2000, Wisconsin's 218 agreement exempted students from social security coverage if the services performed by the student were not expected to exceed 600 hours in each calendar year.

During 1999 the State was successful in modifying its 218 agreement to incorporate a more liberal student exemption, one that virtually every other state uses to determine which students are exempt from social security. The change in State of Wisconsin's 218 agreement also required that state law be amended to mirror the language in the modified agreement. As a result, Wisconsin Act 9, Laws of 1999 creates Sec. 40.41(6)(c), Wis.Stats.:

"The following services shall be excluded from OASDHI coverage, and subsequent modifications of the state-federal agreement shall continue to provide for their exclusion:...Services performed in the employ of a school, college or university, if the service is performed by a student who is enrolled and regularly attending classes at the school, college or university."

The treatment of Sec.40.41(6)(c) first applies to wages earned by a student on or after July 1, 2000.

  1. Definitions

    The Internal Revenue Service Revenue Procedure 2005-11 sets forth the standards that are used to determine whether student-employees are eligible for the student FICA exemption. The Revenue Procedure is incorporated into this policy as Attachment 1. To assist you in the consistent application of this tax procedure, the following examples are provided:

    1. Student-employee: An employee who performs services in the employ of a school, college, or university that are incidental to the pursuit of a course of study at the school, college, or university, and has student status1. Student employees are primarily identified as Student Help or Student Assistants. Postdoctoral fellows, medical residents, or medical interns are, by IRC regulation, specifically excluded from this definition. Additionally, the UW System is one employer. A student-employee may be enrolled at one UW System institution and work at another UW System institution. If the individual is a student at a UW System institution but is employed at a school, college, or university outside of UW System (or vice versa), the individual does not meet the definition of student-employee for the FICA exemption.

    2. Career/Professional Employee: Employees with an open appointment type of one of the following:   LTE, Classified Permanent, Classified Project, Academic Staff, Faculty, Limited, Employees-in-Training, or Other Special Use titles concurrent with a Student Help or Student Assistant appointment will not be eligible for the FICA exemption, since such services cannot generally be considered to be incidental to and for the purpose of pursuing a course of study.

    3. Undergraduate and graduate student status: To be eligible for the student FICA exemption, the student must be enrolled in a degree-earning program at least half-time and attending classes. Half-time course loads are typically different for undergraduates and graduate students. Student status is determined at the conclusion of the "add-drop period" at the beginning of each semester.

    4. Minimum enrolled credit threshold: The number of academic credits constituting a half-time course load for undergraduate and graduate students, during the regular and summer sessions, is a matter of institutional policy for each UW System Institution, but in all cases must be consistent with definitions of half-time status used for other purposes at the institution.

    5. Summer Breaks: Students who work during the summer break and who are not enrolled and attending classes during the summer session are not exempt from FICA. However, the FICA exemption will continue to apply as long as the break is five weeks or less, and provided that the student qualified for the exemption on the last day of classes preceding the break and is eligible to enroll in classes for the academic term that follows the break. See Attachment 2 for examples.

    6. Other Breaks: The FICA exemption will continue to apply as long as the break in enrollment and attendance in classes is five weeks or less, and providing that the student qualified for the exemption on the last day of classes preceding the break and is eligible to enroll in classes for the academic term that follows the break.

      Example: A student was enrolled on a half-time or greater basis for the fall semester and is eligible to enroll for the spring semester. The student works for all or a portion of the winter break, December 23-January 21. Since the break is less than five weeks in length, the FICA exemption continues.

    7. Students working immediately before or after academic term: It is common for student-employees to work shortly before the academic term begins or after the academic term ends. The services performed during the payroll period that falls either wholly or partially within the academic term are eligible for the student FICA exemption

      Example: A student-employee is enrolled in the fall semester on a half-time or greater basis. The student works during the payroll period August 20-September 2. The academic term begins on August 28. The FICA exemption applies to all hours worked during the August 20-September 2 payroll period.

    8. Students in their 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.

    9. Students working a normal work schedule of 40 hours per week or more are not eligible for the FICA exemption.

  2. Policy

    Effective for earnings July 1, 2000, as a result of amendments to the State of Wisconsin's "218 Agreement", the University of Wisconsin now has broader authority to exempt students from FICA taxation. While these powers are broader than those in the past, students must meet specific criteria, as outlined in this policy, to have earnings exempt from the FICA tax.

    Institutions within the University of Wisconsin System are responsible for following the methods, procedures, or systems to monitor continued student eligibility for the student FICA exemption to assure compliance with university policy and state and federal laws and regulations.

    If the student meets the institution's minimum half-time threshold, he/she will be exempt from FICA. Should circumstances change after the "add-drop" period and the minimum thresholds are not met, FICA tax must be withheld.

    Facts and circumstances may exist which are not addressed in this policy document where the student FICA exemption may be appropriate. In such situations, on a case-by-case basis, the institution may request the student FICA exemption. However, students who are eligible for the FICA exemption may not elect to have FICA deductions taken from their wages.

Overall, employment with the university must be incidental to the pursuit of higher education. Under no circumstances can an employee's status be manipulated for the sole purpose of qualifying for the student FICA exemption. A student employee enrolled at one UW System institution while working at another UW System institution may be eligible for FICA exemption. See FICA 2.0 Project, Inter-Campus Student Process January 17, 2012 for additional information.

1Special exemptions may exist for non-resident alien students. Questions regarding these special circumstances should be directed to the UW Service Center or UW System Administration, Office of Staff Benefits.