IRS offers new tax exemptions

University student employees taking at least six credits are exempt from paying social security taxes, according to an IRS ruling Friday.
The decision affects all higher learning institutions by more clearly defining a provision in the federal tax code. The provision exempts students employed by the college they attend from paying Federal Insurance Contributions Act (FICA) taxes, as long as they are enrolled half-time.
“Well, it sounds like a good idea to me,” said Kevin Kolb, a freshman in the College of Liberal Arts who also works for University Food Services.
Students who are “career employees,” defined as those eligible to receive retirement benefits, do not qualify for the exemption.
Non-exempt employers and employees each must pay 7.65 percent of earned wages into the FICA tax base, which accrues money for Social Security and Medicare.
Elizabeth Nunnally, University Business Services taxes director, said that although the ruling should be helpful to all colleges, large public institutions such as the University will benefit most from these new FICA exemption rules.
“That’s a financial burden that’s borne not only by the University student but also the University employer,” Nunnally said. Employers pay the percentage on top of earned wages while employees pay it out of their wages.
The new exemption parameters could save the University millions of dollars. The University’s student payroll currently exceeds $80 million.
Savings to the students are also significant, Nunnally said. “A few dollars here or there to a student can be a pretty big deal, too,” she said.
Previously, the IRS exempted students who were enrolled and regularly attending classes, but did not define how many credits a student had to take to qualify. Some schools took the definition to mean students taking at least one class.
The new provision defines half-time students as those students taking half of a college’s full-time requirement, as long as that requirement was comparable to the federal Department of Education’s definition of half-time.
The IRS also required students to work less than 20 hours a week to be exempt. The new rules do not have guidelines for number of hours worked.
Nunnally was not surprised by the decision to lift hourly restrictions.
“There was no basis in the statute to impose hourly employment criteria,” she said.
The ruling was facilitated by a coalition of 30 colleges, including the University, who have lobbied the IRS to change the exemption rules since 1993.
Bertrand Harding, a Washington attorney representing the coalition, said documents were filed with the IRS explaining that current conditions were unworkable and difficult for colleges to abide by.
“I was mildly surprised that they ruled to throw out the restrictions on hours worked,” Harding said. “But I was fairly confident they weren’t going to stick with the old rules.”
Nunnally credits the IRS for addressing and acting on the issue.
“This is one manifestation of a kinder, gentler IRS,” she said. “I do have to give the IRS credit for being responsive to the industry.”

— Staff Reporter Jim Martyka contributed to this article.