FICA Exemptions
The Federal Insurance Contributions Act (FICA) imposes
taxes
on employers and on employees. These taxes,
collectively termed
FICA tax or social security tax, finance old
age/survivors/disability
insurance and medicare insurance provided under the
Social
Security Act.
In general, Medicare taxes
are assessed and processed in essentially the same
manner as FICA taxes.
The calculation of the tax is based on
the amount
of wages paid to an employee for employment. The law
provides
for several exemptions by excluding either certain
services
as employment or types of compensation as wages.
As a general rule, FICA tax is
applicable
to salary or wage payments made by U.S. employers to
nonresident
alien employees, unless one of the
following
exemptions applies.
Students
Working at the Institution
They Attend
Internal Revenue Code (IRC) Section
3121( b)(10)
generally provides that a student who works for the
school
at which s/he is enrolled and regularly attends
classes is
exempt from the FICA tax. The exemption applies
equally to
US citizens and nonresident alien students.
Additional information re exemption under Section 3121( b)(10) is available in Internal Revenue Bulletin 2005-2, which focuses on student exemption FICA rules. Section 7 deals with undergraduate and graduate student concerns.
F, J, M, and Q
Visaholders
IRC Section 3121(b)(19) states that
the term
employment for FICA tax purposes will not include
service
which is performed by a nonresident alien person for
the period
s/he is temporarily present in the US as a
nonimmigrant under
various subparagraphs of the Immigration and
Nationality Act.
To qualify for the section
3121(b)(19) exemption,
the individual must be: (i) a nonresident alien;
(ii) an F-1,
J-1, M-1, or Q-1 visaholder; (iii) performing
services to
carry out the purpose of the primary ("-1")
visaholder's visa.
The current position of the IRS is
that an individual
will not qualify for the section 3121(b)(19)
exemption if
he is a resident alien for tax purposes under either
the green
card test or the substantial presence test.
Any secondary visaholders (F-2, J-2,
M-2, Q-2,
e.g. spouse and dependent children of the primary
visaholder)
are not eligible for the section 3121(b)(19)
exemption because
the purpose of their visit to the US is to
accompany the primary
(-1) visaholder, not to work.
Application of
Tax Treaties to FICA
Tax Withholding
Unless a treaty carries specific
language allowing
a FICA tax exemption, it likely will be difficult to
argue
that FICA tax is exempt under an income tax treaty.