This guideline addresses social security tax and related withholding issues related to student payroll. Specifically, it explains which employees are eligible to be on the student payroll. University of Massachusetts employees who are ineligible for the student payroll must either be moved to a non student payroll or must be coded in such a way as to generally require that Alternate Retirement Plan (Omnibus Budget Reconciliation Act of 1990 (OBRA) withholdings and Medicare tax withholdings, are deducted from their wages. Exceptions exist in the case of certain nonresident alien employees (see Payroll Tax Guideline #104).
Like other educational institutions, the University of Massachusetts must distinguish between employees on the regular payroll and employees on the student payroll. Student employees at the University are generally exempt from Mandatory Alternate Retirement Plan (OBRA) withholding and from Medicare tax withholding. These exemptions are contingent upon the employee qualifying as a student under IRS guidelines.
Definition of Student-Employee
The Internal Revenue Code defines a student employee as one “who is enrolled and regularly attending classes” at the University (IRC section 3121(b)(10)). The IRS has provided guidance for schools to aid in determining whether an employee qualifies as a student. The Notice generally provides that an individual who is either a half-time undergraduate or half-time graduate student at the University and who is not a “career employee” will be considered as regularly attending classes and therefore eligible for the student employee exception. In general, a “career employee”, at the University, is an individual who is eligible to participate in the State Employee Retirement Plan, the Optional Retirement Plan, or is eligible for tuition remission (other than as a teaching or research assistant). Some of the key factors that need to be considered to determine if a student is enrolled at least half-time include the following:
- The determination of a student’s half-time status is made at the end of the “add/drop” period.
- An undergraduate student is considered to be enrolled at least half-time if the student is enrolled at least half-time under Department of Education regulations. Under Department of Education regulation 34 C.F.R. Section 674.2, Section 7. Definitions an undergraduate student must carry a half-time academic workload as determined by the University which amounts to at least half the workload of a full-time student. The University’s half-time academic workload standard generally must equal or exceed six credit hours of enrollment in any academic semester. The six credit hour minimum appears to apply not only to the spring and fall terms, but also to any summer sessions.
- A graduate student is considered to be enrolled at least half-time if the student is enrolled at least half time under the University’s own internal standards and practices. This rule appears to apply not only to traditional academic terms, but also to the sessions between the traditional academic terms.
- Any student, graduate or undergraduate, who is in their last semester of a course of study, and who is enrolled in the number of credit hours needed to complete the requirements for obtaining a degree will generally be deemed to be half-time — regardless of the number of credit hours.
- The student employee exception does not apply to services performed by an individual who is not enrolled in classes during school breaks of more than five weeks. For example if a student does not attend summer school at the University and is employed during the Summer by the University — such an individual would not qualify for the student exception and the University would generally be required to enroll the student in the mandatory alternate retirement plan and withhold Medicare taxes.
- The student employee exception does apply to services performed by an individual who is not enrolled in classes during school breaks of five weeks or less, provided that the individual qualifies as half-time on the last day of classes or examinations preceding the break and is eligible to enroll in classes for the first academic period following the break.