Student FICA Exception


Services in the employ of certain public or private nonprofit schools, colleges, or universities, or affiliated organizations described in Section 509(a)(3) of the Code performed by a student qualify for the exception from FICA tax provided under IRC Section 3121(b)(10) (Student FICA exception).

IRC Section and Treas. Regulation

  • IRC Section 3121(b)(10)
  • Treasury Regulation Section 31.3121(b)(10)-2

Resources (Court Cases, Chief Counsel Advice, Revenue Rulings, Internal Resources)

  • Rev. Proc. 2005-11, 2005-2 C.B. 307
  • Title 34(education) CFR Section 674.2
  • Title 34(education) CFR Section 668.2


In general, FICA tax applies to wages paid to an employee on account of employment. IRC Section 3121(b)(10) excepts from FICA tax service performed in the employ of a school, college, university (institution), or a section 509(a)(3) organization organized and operated exclusively for the benefit of that institution if the service is performed by a student who is enrolled and regularly attending classes at the institution.

The student FICA exception does not apply to services which are covered by an agreement to provide social security coverage under section 218 of the Social Security Act (section 218 agreement). IRC Section 3121(b)(7) (E). A section 218 agreement may apply to students at a secondary school, as well as to students at an institution of higher education.

The exception applies only to an employee who has the status of a student. An employee who performs services "as an incident to and for the purpose of pursuing a course of study" at the institution for which the services are performed has the status of a student for this purpose. Section 31.3121(b)(10)-2(c).

Rev. Proc. 2005-11, 2005-1 C.B. 307, sets forth new guidelines for determining an educational institution and whether an individual is a student at an institution of higher education (institution) for purposes of the student FICA exception. In brief, an individual who is a half-time undergraduate student or a half-time graduate or professional student (half-time student) will qualify for the student FICA exception, provided that the individual is not a professional employee of the institution. The meaning of these terms is as follows.

In addition to being an "institution of higher education", the employer must be a school, college, or university (SCU) within the meaning of section 3121(b)(10). The SCU primary function is the presentation of formal instruction, it normally maintains a regular faculty and curriculum, and it normally has a regularly enrolled body of students in attendance at the place where its educational activities are regularly carried on. (Treas. Reg. Section31.3121(b)(10)-2(c)). It may also be an affiliated Section 509(a)(3) organization with respect to the SCU.

Under Rev. Proc. 2005-11 Section 6.03, services performed by professional employee, is not eligible for the student FICA exception. A professional employee is any individual performing services for an institution who:

  1. Is eligible for vacation, sick leave, or paid holiday benefits;
  2. is eligible to participate in any retirement plan described in section 401(a); 
  3. is eligible to receive an allocation of employer contributions other than contributions described in section 402(g) of the Code under an arrangement described in section 403(b);
  4. is eligible to receive an annual deferral by non-elective employer contributions under an eligible deferred compensation plan described in Section 457(b), or would be eligible for such annual deferrals if plan requirements were met, or if contributions by salary reduction were made by the employee to a plan described in Section 457(b);
  5. is eligible for reduced tuition (other than qualified tuition reduction under section 117(d)(5) of the Code, provided to a teaching or research assistant who is a graduate student; 
  6. is eligible to receive one or more of the employment benefits described under sections 79 (life insurance), 127 (qualified educational assistance), 129 (dependent care assistance programs), and 137 (adoption assistance).

If any of the above benefits are mandated by state or local law, this will not cause an employee to be ineligible for the safe harbor provisions of Rev. Proc. 2005-11.

If the individual performs services in multiple positions, the individual will be deemed a professional employee with respect to all of the positions if the individual is a professional employee in any one or more of the positions.

An individual, who is a half-time student, and not a career employee, may qualify for the student FICA exception. A half- time undergraduate student is an enrolled student who is carrying a half-time academic workload, as determined by the institution that amounts to at least half of the workload of the applicable minimum requirement outlined in the definition of a full-time student. See 34 C.F.R. Section 668.2.

An individual is deemed to be a half-time student if the individual is not a career employee, is in the last semester, trimester, or quarter of a course of study and is enrolled in the number of credit or unit hours needed to complete the requirements for obtaining a degree. The course of study must require at least two semester, trimesters, or quarters to complete and must lead to a degree, certificate, or other recognized educational credential. See Rev. Proc. 2005-11, section 7.

Issue Indicators or Audit Tips

Part of your examination procedures should include a test of student wages on which FICA was not withheld or was withheld on only a portion of their wages.

You will need to review documentation that shows the students qualify for the FICA exception. This information should be sufficient to show that the student employee has the status of a student and the portion of the year that this status was held. In addition, you would need to know when the student worked during the year.

For those students reflecting an allocation of their wages between taxable and non-taxable FICA wages, the employer should provide an explanation as to how the allocation was determined.