A new IRS code enacted to help student workers now has some concerned that it will come back to haunt them later in life.
To receive Social Security benefits, individuals must have paid Social Security taxes. The IRS ruled Jan. 16 that students employed by their college are automatically exempt from paying Social Security taxes.
Students must be taking at least six undergraduate or four graduate credits to be eligible for the exemption. While it puts more money in students’ pockets now, some fear they will lose some Social Security or disability benefits when they no longer work.
But University student employees have no reason for concern, advocates of the ruling say.
A coalition of 30 colleges, including the University, recommended the new provisions to the IRS to simplify the taxation process. Not only are students expected to benefit, but higher learning institutions will save because they are required to match employees’ Social Security payments. The exemptions will erase that burden.
The ruling took effect immediately and will be reflected in paychecks distributed by the University starting today.
The Social Security Administration employs a system of credits to reflect how much each individual worker has paid in Social Security taxes. Up to four credits can be earned per year. When that person makes a disability or retirement claim, that information determines the level of benefits the claimant receives.
Bertrand Harding, an attorney for the coalition who proposed the changes, said student concerns for losing benefits weren’t considered during the inception of the plan.
“Most of the students we talked to were in favor of eliminating the tax,” Harding said. “Working for your school is sort of viewed as quasi-financial aid.”
Harding also added that when figuring retirement benefits, the Social Security Administration looks at a person’s overall lifetime work history. “After 40 or 50 years of being in the work force and paying Social Security taxes, retirement benefits should not be affected by four or five years of exemption,” he said.
Social Security Administration officials said anyone making a disability claim will be evaluated for benefits on the basis of taxes paid over their last five years of employment before they became disabled.