IRS Issues Final Regulations on Student Exception from Employment Taxes

Last week, the Department of the Treasury and Internal Revenue Service issued final regulations on the exception from employment taxes for services provided by students when those services are performed for a school, college or university. The regulations were issued earlier this year in proposed form and a hearing was held on June 16.

Although wages paid to students for working for a school, college or university are subject to income tax, a special exception excludes the wages for such services from FICA and FUTA taxes if certain requirements are met. Questions have arisen regarding whether the exception is available in situations where the employment aspects of the student worker's relationship to the school, college or university predominate, especially in the case of medical residents receiving training in connection with the provision of health care services. These regulations address those questions.

The final regulations provide standards for determining whether an employer qualifies as a school, college, or university, and whether an employee is a student for purposes of exception from employment taxes. The final regulations also provide that full-time employees are not students for purposes of the exception, and outline relevant factors to be taken into account in determining if the exception applies to the services provided by other employees.

In addition to the final regulations, the Treasury and the IRS are issuing a revenue procedure providing a safe harbor for the student FICA exception. The revenue procedure replaces Rev. Proc. 98-16, 1998-1 C.B. 403; the new revenue procedure modifies the Rev. Proc. 98-16 safe harbor standards to be consistent with the final regulations.

Source: IRS

You may like these other stories...

In today's volatile marketplace, companies, regardless of their size, are dealing with more complexity than ever before. Global markets, which bring both new opportunities and new competitors, far-flung supply chains...
If you're a CPA with a bent for do-gooding, nonprofit accounting may be just your niche."We deal with a lot of organizations that do a lot of good things," says Ryan Keith, a partner in KB Parrish & Co. in...
Summer is gone and college students are back on campus or will be headed there soon. For accounting majors, this means fall recruiting season is about to be in full swing, complete with all the traditions: "Meet the...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.