U.S. FICA EXEMPTIONS FOR FOREIGN STUDENTS

by Paula Singer, Esq. 

Generally, under the immigration laws, foreign students may be studying in the United States in one of three categories:

• F-1 Academic Student status
• J-1 Student Exchange Visitor status
• M-1 Technical Student status

Under the immigration rules, foreign students are authorized to work on the campus of their authorized institution for a maximum of 20 hours a week while classes are in session. They may work full-time on campus when classes are not in session, such as during summer vacation. F-1 students may be employed for “economic hardship” if they obtain an employment authorization document (EAD) from the immigration service. F-1 students may also be employed under a program of curricular practical training (CPT). Foreign students may be employed off-campus for practical training related to their field of study. The allowable periods of training vary by their immigration category and, in the case of J-1 students, by their academic degree.

Under the U.S. tax rules all employees performing services in the United States are subject to U.S. social security and Medicare taxes unless an exception applies. There are two FICA exceptions that may apply to foreign students: 1) the Student FICA Exception and 2) the NRA FICA Exception.

The Student FICA Exception

Section 3121(b)(10) of the Internal Revenue Code (the “Code”) provides an exception from FICA tax for students who are employed by a school, college, or university or a section 509(a)(3) affiliate. The exception applies regardless of the type of institution - private or public, tax-exempt or for-profit.

The exception does not require that students be a U.S. citizen in order to qualify for the FICA tax exemption. Therefore, foreign students, whether their residency status is resident or nonresident, are eligible for the Student FICA Exception under the same rules that apply to students who are citizens.

To qualify for the Student FICA Exception, students must be enrolled and attending classes at the institution. In order for their employment to qualify for the exception from FICA tax, it must be incident to and for pursuing a course of study at the employer institution. Therefore, full-time employment does not qualify for the Student FICA Exception.

However, they may work full-time during school vacations. Although the Student FICA Exception does not apply to full-time employment, foreign students may be exempt from FICA tax on their full-time employment under the NRA FICA Exception.

The NRA FICA Exception

Section 3121(b)(19) of the Code provides an exception from FICA tax for services performed by nonresident aliens temporarily in the United States in “F”, “J”, “M” or “Q” status for employment performed to carry out the purpose specified by the individual’s immigration status. (“Q” status individuals are cultural visitors.) This exception is called the NRA FICA Exception.

Foreign students qualify for the NRA FICA Exception if:

• They are nonresident aliens (NRAs) under the substantial presence test. Foreign students are typically NRAs for their first 5 calendar years as a foreign student. They typically become resident aliens (RAs) in their 6th calendar year. They may become an RA earlier if they have been in the United States in “F,” “J,” “M,” or “Q” status.
• The work is authorized under the immigration rules. Authorized work includes the examples described above. Foreign students engaged in unauthorized employment are not eligible for the NRA FICA Exception. (Unauthorized work may also jeopardize their immigration status.)
• The work is consistent with their purpose for being in the United States. Generally, all authorized employment meets this condition. However, the IRS disallows the NRA FICA Exception for dependents who are working even if the work is authorized, for example, J-2 spouses working with an EAD. (A J-2 spouse’s purpose for being in the United States is to accompany their spouse.)

This FICA exception is more liberal than the Student FICA Exception because it applies to on-campus employment during official breaks, authorized off-campus employment, and practical training including at a corporation.

Foreign students who fail to meet the conditions for the NRA FICA Exception because they become RAs are still eligible for the Student FICA Exception for on-campus employment.

Paula Singer, Esq., CEO of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA has over 25 years of experience providing advice and compliance services to individuals, their employers, and payors on cross-border employment matters.

Watch for Volume 2, Number 4 for a discussion on “The new student FICA exception regulations.”

Q. I am an F-1 student working at a corporation under OPT. My employer withheld FICA, and I think I should be able to get a refund. What do I do?

A. The Student FICA Exception does not apply to OPT. If you are a nonresident, you are eligible for the NRA FICA Exception. If you have not been in the United States for more than 5 calendar years in F, J, M, or Q status since 1985, you would be a nonresident. If you are eligible for the exemption and your employer will not give you a refund of your withheld FICA taxes, you may request a refund from the IRS using Form 843 and the instructions provided in IRS Publication 519, U.S. Tax Guide for Aliens.

Windstar Welcomes Aboard the Following New Clients:

College of the Holy Cross
Fred Hutchinson Cancer Research Center
Jackson Laboratory
Liberty University
University of Arkansas – Monticello
Worcester Polytechnic Institute

It’s Not Too Early to Sign Up for August NRA Training!

The August NRA Training Session will be held at the Marriott in Newton, MA from August 2 - 5, 2005. Check www.windstar.com for schedule and registration.

Windstar Will Dock at These Upcoming Trade Shows

New England Payroll Conference
Foxwoods, Uncasville, CT
June 8 - 10

Understanding Service Payments to Foreign Workers:
Paula Singer
June 9 - 8:30 a.m. - 10:00 a.m. - Session 1

* * * * * * * * * *

American Immigration Lawyers Association Annual Conference
Salt Lake City, UT
June 22 - 25

Tax FAQs in Business Immigration
Paula Singer - discussion leader and presenter
June 25, 12:00 p.m - 1:00 p.m.

* * * * * * * * * *

NACUBO 2005 Annual Meeting
Booth #202 – Baltimore Convention Center, Baltimore, MD
July 9-12, 2005

©Copyright 2005 by Windstar Technologies, Inc. Windstar reserves all rights to this electronic material. Information contained in this publication is based on the best information available at the time of publication.  While believing the information in this publication to be accurate, Windstar accepts no legal responsibility for its accuracy.