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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 742
Experience:  Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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I am writing to you regarding something I learned recently.

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Hello! I am writing to you regarding something I learned recently. I have been on F1 visa in the US on and off since 2007. I recently started a fully funded PhD program as a full time grad student and based on substantial presence test, I am considered a resident alien, who would generally be subject to FICA. However, I learned that there is a clause under IRS called 'student FICA exemption' applicable to both American and foreign students which exempts me from FICA being deducted from my stipend paychecks that I receive from my grad school. I am refering to the following paragraph from https://www.irs.gov/individuals/international-taxpayers/foreign-student-liability-for-social-security-and-medicare-taxes"Also, the Internal Revenue Code provides one exemption from social security/Medicare taxes for foreign students and another exemption from social security/Medicare taxes for all students, American and foreign. This is the so-called "student FICA exemption", and it may operate to exempt a foreign student from social security/Medicare taxes even though the foreign student has already become a RESIDENT ALIEN. For employment which occurs after April 1, 2005, Revenue Procedure 2005-11 provides instructions for determining who is eligible for the "student FICA exemption"."I am pretty confident that my school should not be taking FICA out of my paychecks based on the above clause but they are giving me a hard time about it because they don't seem to understand the clause well. I am writing to you to be sure that I understand it well myself and to be a 100% sure before I go and fight them for my refund and also to stop them from withholding FICA from my future paychecks. Please let me know what you think and whether you want me to give you more data.
Customer: replied 1 month ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Customer: replied 1 month ago.
Sorry I didn't mean to click the button requesting a Live Phone Call. I was just testing the different options to learn about them. I just need a written answer to my question.

Welcome to Just Answer! Thank you for giving me the opportunity to assist you! I will do my best to help!

Please give me a few minutes to type my answer.

The section that you are referring to, Internal Revenue Code §3121(b)(10), allows student workers to not pay FICA tax on their wages. This section was originally set up to assist those who receive financial aid in the form of work-study.

Here is a good description of it from the IRS: https://www.irs.gov/charities-non-profits/student-exception-to-fica-tax

Here is the actual regulation: https://www.law.cornell.edu/cfr/text/26/31.3121%28b%29%2810%29-2

In your case, this may not apply. To qualify, your employment has to be incident to your studies, in otherwords, minor. Full-time, or significant part time work are NOT considered incident, according to the law and the cases thereunder.

Additionally, if you are teaching as a professor or adjunct faculty or teacher's aide, you would be considered a professional employee, which is by definition not an exempt study.

So based on two criteria, your university is correct. As I stated earlier, it is usually for undergraduate work study as part of a financial aid package.

I hope this has answered your question. If you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great week!

Roger

Customer: replied 1 month ago.
Hello Roger. Thanks for taking the time to respond to my message. I respectfully ***** ***** what you're saying, specifically addressing the comment 'To qualify, your employment has to be incident to your studies, in otherwords, minor.'. I may not have made it very clear but my stipend is absolutely and totally incident to my studies. I am a full time graduate student and I get paid a small stipend to enrolled in school and take credits toward a doctoral degree. I don't work part or full-time at all. I have looked at the IRS link before and I glanced over the Cornell link just now. I am still sure that I meet all the criteria to have a FICA exemption. My real concern was whether being a foreign student on F1 visa who is a resident alien for tax purposes, am I able to claim the same exemption as an American graduate student. I have friends in the exact same program with the exact same stipend who are US citizens and have therefore fought for and been granted a student FICA exemption (same as the one in the link I sent before). I am just trying to be 100% sure that the same rule applies to me as an international in my unique circumstance, which is why I resorted to expert opinion.

Under IRC §3121, you have the same rights as a US citizen, your F-1 visa does not affect you.

I am familiar with several PhD programs around here - I looked into a PhD in Accounting myself (I have an MST and MA) and the stipends that are paid to the candidates for teaching are significant - over $50k in one case! So this certainly would not have been incidental.

I am still concerned about the professional employee status. It is defined as an employee who has specialized knowledge in a field of study, among other things. That may apply to you.

But if it does not, and if the stipend is truly minimal or incidental as you indicate, then you should be exempt. Your foreign student status should not have any bearing on this.

Customer: replied 1 month ago.
Hi again! Thanks for your response. I am glad that my foreign student status doesn't have a bearing on my potential FICA exemption status. Also, I don't have a teaching assistantship and my stipend is only $30K in New York City of all places! So, it truly isn't much.
However, just to be very clear and be on the same page...would you mind elaborating on your comment - "I am still concerned about the professional employee status. It is defined as an employee who has specialized knowledge in a field of study, among other things. That may apply to you."
From what I understand, I am under what is called a graduate assistantship in SUNY. I am training to be a scientist while taking credits and courses toward a degree.

The link I sent you earlier with the actual law states:

(B)Professional employee.

(1) If an employee has the status of a professional employee, then that suggests the service aspect of the employee's relationship with the employer is predominant. A professional employee is an employee -

(i) Whose primary duty consists of the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education, from an apprenticeship, and from training in the performance of routine mental, manual, or physical processes;

(ii) Whose work requires the consistent exercise of discretion and judgment in its performance; and

(iii) Whose work is predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical, or physical work) and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time.

The wages of a professional employee are not exempt. So if your work was judged to meet the professional employee definition, then you would be subject to FICA tax.

The thing that makes me question this is the university's reluctance to allow the exemption. This can't be the first time that they have run across it, so they may have other reasons.

Customer: replied 1 month ago.
I think you've answered my question already. As for my university's HR...they are notorious for being extremely irresponsible and for even taking FICA out of nonresident aliens' stipends during their first 5 years of F1 stay in this country and then being reluctant to correct their mistakes. This is something very specific to the HR department of my grad school. Not trying to badmouth them, just clarifying that you shouldn't take their reluctance into consideration while judging whether I the exemption truly applies to me.

OK. I am familiar with University of Chicago, Northwestern, U of I, UW, and others. I've had clients getting PhDs with stipends at each, and have never run into incompetence. I am not familiar with SUNY.

Please be sure to rate me, as this is how the questions are closed from my end.

Thanks!

Roger

Customer: replied 1 month ago.
I found this: https://www.rfsuny.org/media/RFSUNY/Procedures/pay_social-security-medicare-taxation_pro.htmIf you read under 'Requirements for Students', it makes it pretty clear that I would be FICA exempt in the SUNY system. Would you agree?

I agree. This is from the university that you are at? Then why won't they follow their own paperwork?

Customer: replied 1 month ago.
this is my university. And I don't have an answer to why they won't follow their own paperwork. Lack of ethics? I have no idea why. All I know is if I have the right to claim an exemption as a graduate student, which will ultimayely make my life easier...I will do it. The reason I contacted you was for me to be more certain of whether this actually applied to me, so I can be confident in making my case.

You are correct. You should be able to get the exemption.

I have not heard back from you. Do you have any further questions?

If not, please don't forget to rate me. It is how the questions are closed.

Thanks!

Roger

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Customer: replied 30 days ago.
I just rated you. However, I may have a few follow up questions related to this situation depending on what HR says to me next. Will it be okay if I ask you those in this forum?

Yes you can. I will answer any further questions that you have on this matter.

Thanks!

Roger

Customer: replied 22 days ago.
Hi again! I am just writing to you to follow up on my graduate student FICA exemption situation. Payroll has finally gotten back to me but they are asking me to fill out Form 8233. I looked it up on IRS's website and it doesn't seem to be relevant for my purpose. What are your thoughts? Are there any specific forms I should be filling out instead? I only know of forms 8416 and 843, but I was under the impression that I would have to fill these two out if the school refuses to refund my FICA money, which isn't the case. I'd appreciate your insight in this regard.

This form is NOT required. IT is exempt from income tax as well as social security as a working condition fringe benefit. It has nothing to do with any tax treaty with any foreign country.

The school is wrong. I could call them if you gave me a name and phone number. I would need your name as well.

Customer: replied 21 days ago.
Hi again Roger! Thanks for your response. I just spoke to Payroll today in person and the representative said that they haven't had to deal with this situation and would need to figure out what kinds of forms I am required to fill out before they can exempt my future stipend paychecks from FICA (social security and medicare). Besides, I was also told that they would give me a letter saying that they are not gonna remove FICA from my future paychecks and apparently I can then take that to IRS and request my refund. Would you mind telling me what forms I am required to fill out a) to not have FICA removed from my paychecks in the future b) forms needed to receive FICA refund from IRS. Honestly, I was under the impression that I was not gonna need to fill out any forms for either as Payroll should automatically take care of this, so I am not a bit confused.
Customer: replied 21 days ago.
I meant to say that I am now a bit confused. I would appreciate your feedback. Also, thanks for offering to speak with them. I want to wait a bit before I have to resort to that as the Deputy said that she'll speak to the Director of Payroll and get back to me on this. However, if I do use your help (in having you call them), would there be a fee for the same? If so, how much would it cost?

I am not sure how much it would be - it is a function of how long it took, so I am guessing not too much. My billing rate for the firm I work for is $275 per hour. When I had my own firm, I charged out at $400 per hour. I am guessing that it would take about 30 minutes or less to talk to them and get them to understand. So the fee would be somewhere around $140 - $150.

As for obtaining a refund of the FICA that they have erroneously withheld, you can file a Form 843. On Line 6 of the Form, you would check Form 941 as the Form that your employer reported it incorrectly on. For the explanation you would state what happened, and attach a copy of the letter from the school.

Thanks!

Roger

Customer: replied 14 days ago.
Hi again Roger, thanks for your previous reponse. This may be my last question on this subject. I was wondering whether the student FICA exemption will apply to the four months of summer when I get paid a stipend from the grad school but am not enrolled in any classes. Does this imply that my refund should only be for the 8 months of the school year when I am in full time classes (after excluding the 4 summer months)? I'd appreciate your response.
Customer: replied 6 days ago.
Hi Roger! I just wanted to write to you to inform you that my school's HR has finally processed my FICA exemption which will be applied in my future stipend paychecks. Thanks a lot for your help in this regard! Would you mind telling me if I should ask the school for the refund or should I go to the IRS for it?
Customer: replied 6 days ago.
Sorry for sounding redundant, but I ask because I read on IRS's website that I must first ask the organization for the refund and only when the organization refuses to pay the refund in writing can I use the letter they provide (with explanation) do I file Form 843 to IRS. I believe the school is likely to provide me the letter. Can I file this form right away, or do I need to wait until next year when I file my taxes? Any idea how long these things take? If you can direct me to a link, that would be helpful too! I'd be happy to give you an additional bonus on your answer btw.
Customer: replied 6 days ago.
Additionally, should I also fill out Form 8316?

Sorry, I was working out of town for the past couple of weeks.

I am glad that your school is finally following the law. I would get the refund from the IRS, based on your experience with the school, the IRS would be easier to work with. You can ask the school first, but they probably won't do it.

Your FICA exemption would apply to the summer as well, since the stipend is related to the school that you attended.

Customer: replied 1 day ago.
Hi Roger, that's no problem. Thanks for getting back to me. Would you mind also addressing my question regarding the forms I need to turn in to the IRS? Should form 843 by itself suffice, or do I need a form 8316 as well?

I just looked at the Form 8316, and there are several articles written on it (by several schools - must be a problem nationwide). They all state that you must get a letter from your employer (school) stating why they will not refund the tax, and then send it with the Form 843 AND the Form 8316 AND a copy of your W-2 or pay stubs to the IRS.

Customer: replied 23 hours ago.
Oh that is what I understood so far, so thanks for confirming it. I am going to try to get the letter, but what if the school doesn't provide it to me, or refuses to? Can I still submit the forms to the IRS, explaining that I tried to get a letter stating why the school won't refund the tax, and that they refused to give it to me?

Yes that is what you need to do. You explain in the section that you attempted to get the refund from the employer and they refused. This should not affect your getting the refund.