rp-05-11.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 31.3121(b)(10): Services performed by certain students in the employ of
a school, college, or university, or of a nonprofit organization auxiliary to a
school, college, or university

Rev. Proc. 2005-11

SECTION 1. PURPOSE
.01 This revenue procedure sets forth generally applicable standards for
determining whether services in the employ of certain public or private nonprofit
schools, colleges, or universities, or affiliated organizations described in §
509(a)(3) of the Internal Revenue Code (the Code) performed by a student
qualify for the exception from Federal Insurance Contributions Act (FICA) tax
provided under § 3121(b)(10) of the Code (Student FICA exception). These
standards are intended to provide objective and administrable guidelines for
determining employment tax liability.
.02 This revenue procedure modifies the safe harbor standards provided
in Rev. Proc. 98-16, 1998-1 C.B. 403, in several respects in order to align them
with the recently issued final regulations under § 31.3121(b)(10)-2 of the
Employment Tax Regulations (T.D. 9167, XX F.R. XXXX).

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SECTION 2. BACKGROUND INFORMATION AND OVERVIEW
.01 Proposed amendments to § 31.3121(b)(10)-2 of the Employment Tax
Regulations were issued on February 25, 2004, and were proposed to be
applicable with respect to services performed on or after that date (69 F.R.
8604). Notice 2004-12, 2004-10 I.R.B. 556, issued in conjunction with the
proposed amendments, proposed to replace Rev. Proc. 98-16 with a revenue
procedure that is consistent with the proposed amendments. Notice 2004-12
provided interim reliance on the proposed revenue procedure as of February 25,
2004, and suspended Rev. Proc. 98-16 pending issuance of the final revenue
procedure. Notice 2004-12 requested comments on the proposed revenue
procedure. After consideration of the comments that were received, the
proposed revenue procedure is adopted as revised by this revenue procedure,
and Rev. Proc. 98-16 is modified and superseded effective April 1, 2005.
.02 This revenue procedure modifies the safe harbor standards of Rev.
Proc. 98-16 in several respects in order to align them with the final regulations.
First, in order for the safe harbor to be available, in addition to being an
“institution of higher education” under the Department of Education’s regulations,
as required by Rev. Proc. 98-16, the employer must be a school, college, or
university (SCU) as defined in § 31.3121(b)(10)-2(c) of the final regulations, or an
affiliated § 509(a)(3) organization with respect to the SCU. The final regulations
provide that an organization is not a SCU unless its primary function is to conduct
educational activities. The primary function requirement may cause the student
FICA exception to be unavailable to certain organizations, such as hospitals and

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museums, that have embedded within them divisions or functions that carry on
educational activities. See section 5 of this revenue procedure.
.03 Second, a “full-time employee” as defined in § 31.3121(b)(10)-
2(d)(3)(iii) of the final regulations is ineligible for the student FICA exception.
This section provides that the services of a full-time employee are not incident to
and for the purpose of pursuing a course of study. Whether an employee is a
full-time employee is based on the employer’s standards and practices, except
that an employee whose normal work schedule is 40 hours or more per week is
always considered a full-time employee. Accordingly, a full-time employee is
ineligible for the safe harbor provided in this revenue procedure. See section 6
of this revenue procedure.
.04 Third, the safe harbor is unavailable with respect to the services of a
“professional employee” as defined in § 31.3121(b)(10)-2(d)(3)(v)(B)(1) of the
final regulations. This section provides that a professional employee is an
employee whose work: (1) requires knowledge of an advanced type in a field of
science or learning, (2) requires the consistent exercise of discretion and
judgment, and (3) is predominantly intellectual and varied in character. Although
the safe harbor is unavailable, a professional employee may qualify for the
student FICA exception based on consideration of all the facts and
circumstances. See section 6 of this revenue procedure.
.05 Fourth, and finally, this revenue procedure expands the list of
employment benefits that cause an employee to be ineligible for the safe harbor.
This change is consistent with § 31.3121(b)(10)-2(d)(3)(v)(C) of the final

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regulations, which provides that eligibility for employment benefits generally
suggests that an employee is not a student. Rev. Proc. 98-16 provides that the
services of a “career employee” are ineligible for the safe harbor. Under Rev.
Proc. 98-16, a career employee is an employee who is eligible to participate in
certain retirement plans, eligible for reduced tuition (with certain exceptions), or
otherwise classified by the employer as a career employee. The final regulations
adopt the same list of employment benefits, and add to the list eligibility for
several other employment benefits that are identified. Although the safe harbor
is unavailable if an employee receives employment benefits described in this
revenue procedure, the employee may qualify for the student FICA exception
based on consideration of all the facts and circumstances. See section 6 of this
revenue procedure.
.06 Both the final regulations and this revenue procedure are applicable
with respect to services performed on or after April 1, 2005. This revenue
procedure provides that Rev. Proc. 98-16 is no longer suspended, and
employers may rely on it with respect to services performed prior to April 1, 2005,
including services performed on or after February 25, 2004 and prior to April 1,
2005. Rev. Proc. 98-16 is modified and superseded with respect to services
performed on or after April 1, 2005. See section 10 of this revenue procedure.
SECTION 3. SCOPE
.01 Sections 6 and 7 of this revenue procedure contain generally
applicable standards for determining whether services performed by employees
of certain institutions of higher education are eligible for the student FICA

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exception.
.02 The standards contained in this revenue procedure do not apply to
employees who are postdoctoral students, postdoctoral fellows, medical
residents, or medical interns because the services performed by these
employees cannot be assumed to be incident to and for the purpose of pursuing
a course of study. The employment activities of these individuals overlap with
the activities arguably comprising a course of study, and thus it is not appropriate
to apply the standards of this revenue procedure to these individuals.
.03 The standards contained in this revenue procedure may not constitute
the exclusive method for determining whether the student FICA exception
applies. If the standard for qualifying for the exclusion described in section 7 of
this revenue procedure (providing generally that an employee enrolled at least
half-time at an institution of higher education has the status of student) is not
met, whether or not services in the employ of a SCU, or an affiliated § 509(a)(3)
organization qualify for the student FICA exception will depend on consideration
of all the facts and circumstances.
SECTION 4. BACKGROUND LAW
.01 Sections 3101 and 3111 of the Code impose social security and
Medicare taxes (FICA taxes) on employees and employers, respectively, equal to
a percentage of the wages received by an individual with respect to
employment.
.02 Section 3121(a) of the Code defines "wages" for purposes of FICA
taxes as all remuneration for employment, with certain exceptions. Section

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3121(b) of the Code defines "employment" as services performed by an
employee for an employer, with certain exceptions.
.03 Section 3121(b)(10) of the Code excepts from the definition of
employment services performed in the employ of a SCU (whether or not that
organization is exempt from income tax), or an affiliated § 509(a)(3) organization
if the services are performed by a student who is enrolled and regularly attending
classes at that SCU. Remuneration for services excluded from the definition of
employment under § 3121(b)(10) of the Code is not subject to FICA taxes.
.04 Section 31.3121(b)(10)-2(b) of the final Employment Tax Regulations
provides that the tests for determining eligibility for the student FICA exception
are (1) whether the employer is a SCU within the meaning of § 31.3121(b)(10)-
2(c) of the final regulations, and (2) whether the employee is a student within the
meaning of § 31.3121(b)(10)-2(d) of the final regulations. If the employee has
the status of a student, the amount of remuneration for services performed by the
employee, the type of services performed by the employee, and the place where
the services are performed are immaterial for purposes of the student FICA
exception.
.05 Section 31.3121(b)(10)-2(c) of the final regulations provides that an
organization is a SCU within the meaning of § 3121(b)(10) if its primary function
is the presentation of formal instruction, it normally maintains a regular faculty
and curriculum, and it normally has a regularly enrolled body of students in
attendance at the place where its educational activities are regularly carried on.
.06 Section 31.3121(b)(10)-2(d)(3)(i) of the final regulations provides that

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in order to have the status of a student, an employee’s services for the SCU must
be incident to and for the purpose of pursuing a course of study at the SCU.
Whether an employee’s services are incident to and for the purpose of pursuing
a course of study is determined on the basis of the relationship of the employee
with the organization for which such services are performed as an employee.
The educational aspect of the relationship, as compared to the service aspect,
must be predominant in order for the employee’s services to be incident to and
for the purpose of pursuing a course of study. Except in the case of a full-time
employee described in § 31.3121(b)(10)-2(d)(3)(iii) of the final regulations,
whether the educational aspect or service aspect of an employee’s relationship
with the employer is predominant is determined by considering all the relevant
facts and circumstances. Whether an employee’s services are incident to and for
the purpose of pursuing a course of study is determined separately with respect
to each academic term. Relevant factors in evaluating the educational and
service aspects of an employee’s relationship with the employer are described in
§§ 31.3121(b)(10)-2(d)(3)(iv) and (v) of the final regulations respectively.
.07 Section 31.3121(b)(10)-2(d)(3)(iii) of the final regulations provides that
the services of a full-time employee are not incident to and for the purpose of
pursuing a course of study. The determination of whether an employee is a full-
time employee is based on the employer’s standards and practices, except
regardless of the employer’s classification of the employee, an employee whose
normal work schedule is 40 hours or more per week is considered a full-time
employee. The employee’s work schedule during academic breaks is not

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considered in determining whether the employee’s normal work schedule is 40
hours or more per week.
.08 Section 31.3121(b)(10)-2(d)(3)(iv) of the final regulations provides that
the educational aspect of an employee’s relationship with the employer is
generally evaluated based on the employee’s course workload. Whether an
employee’s course workload is sufficient in order for the employee’s employment
to be incident to and for the purpose of pursuing a course of study depends on
the particular facts and circumstances. A relevant factor in evaluating an
employee’s course workload is the employee’s course workload relative to a full-
time course workload at the SCU at which the employee is enrolled and regularly
attending classes.
.09 Section 31.3121(b)(10)-2(d)(3)(v) of the final regulations provides
certain relevant factors in evaluating the service aspect of an employee’s
relationship with the employer. Under § 31.3121(b)(10)-2(d)(3)(v)(B)(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--
(1) 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;

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(2) Whose work requires the consistent exercise of discretion and judgment in its
performance; and
(3) 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.
.10 Section 31.3121(b)(10)-2(d)(3)(v)(C) of the final regulations provides
that whether an employee is eligible to receive employment benefits is a relevant
factor in evaluating the service aspect of an employee’s relationship with the
employer. However, eligibility for benefits mandated by law is given a lesser
amount of weight in evaluating the relationship.
.11 Section 218 of the Social Security Act (the Act), 42 U.S.C. section 418,
requires the Commissioner of Social Security, if requested by a State, to enter
into an agreement with the State to provide Social Security coverage for services
performed by individuals as employees of such State. The State may request
that the coverage agreement exclude from coverage service performed by a
student. If a State has exercised its option under § 218 of the Act to provide
coverage for its employees, and has not chosen to exclude students from such
coverage, § 3121(b)(10) of the Code provides that the services of students will
not qualify for the student FICA exception; that is, the students’ services will be
covered and the wages will be subject to FICA taxation.
SECTION 5. SAFE HARBOR APPLIES TO CERTAIN INSTITUTIONS OF
HIGHER EDUCATION

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.01 The standards contained in this revenue procedure apply to an
“institution of higher education” meeting the requirements of § 31.3121(b)(10)-
2(c) of the final regulations. For purposes of this revenue procedure, the term
"institution of higher education" means any public or private nonprofit SCU within
the meaning of § 31.3121(b)(10)-2(c), or affiliated § 509(a)(3) organization with
respect to the SCU, that meets the requirements set forth in Department of
Education regulations at 34 C.F.R. § 600.4, as amended from time to time, and
that is accredited or preaccredited by a nationally recognized accrediting agency
as defined in the Department of Education regulations at 34 C.F.R. § 600.2.
.02 Services for other institutions may also be eligible for the student FICA
exception. Thus, for example, services performed by a student for a secondary
school may be eligible for the student FICA exception. Whether or not services
for other institutions, such as secondary schools, qualify for the student FICA
exception is determined based on the facts and circumstances of each case.
SECTION 6. SAFE HARBOR NOT AVAILABLE FOR CERTAIN EMPLOYEES
.01 Services performed by an employee with the status of a “full-time
employee” within the meaning of § 31.3121(b)(10)-2(d)(3)(iii) of the final
regulations are not eligible for the student FICA exception because such services
are not incident to and for the purpose of pursuing a course of study.
Accordingly, the services of a full-time employee are not eligible for the safe
harbor provided under section 7 of this revenue procedure.
.02 Services performed by a “professional employee” within the meaning
of § 31.3121(b)(10)-2(d)(3)(v)(B)(1) of the final regulations are not eligible for the

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safe harbor provided under section 7 of this revenue procedure, because such
services cannot generally be considered to be incident to and for the purpose of
pursuing a course of study. However, the services of a professional employee
may be eligible for the student FICA exception based on consideration of all the
facts and circumstances.
.03 Services performed by an employee who receives or is eligible to
receive employment benefits as described in this paragraph 6.03 (except as
provided in paragraph 6.04 of this revenue procedure) are not eligible for the safe
harbor provided under section 7 of this revenue procedure, because such
services cannot generally be considered to be incident to and for the purpose of
pursuing a course of study. However, the services of an employee who receives
or is eligible for employment benefits as described in this paragraph 6.03 may be
eligible for the student FICA exception based on consideration of all the facts and
circumstances. For purposes of this revenue procedure, an employee’s services
are not eligible for the safe harbor provided under section 7 of this revenue
procedure if the individual –
(1) Is eligible for vacation, sick leave, or paid holiday benefits;
(2) Is eligible to participate in any retirement plan described in § 401(a) of the
Code that is established or maintained by the institution, or would be eligible to
participate if age and service requirements were met;
(3) Is eligible to receive an allocation of employer contributions other than
contributions described in § 402(g) of the Code under an arrangement described
in § 403(b) of the Code, or would be eligible to receive such allocations if age

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and service requirements were met, or if contributions described in § 402(g) of
the Code were made by the employee;
(4) Is eligible to receive an annual deferral by nonelective employer contributions
under an eligible deferred compensation plan described in § 457(b), or would be
eligible for such annual deferrals if plan requirements were met, or if
contributions by salary reduction were made by the employee to a plan described
in § 457(b);
(5) Is eligible for reduced tuition (other than qualified tuition reduction under §
117(d)(5) of the Code provided to a teaching or research assistant who is a
graduate student as described in section 8.03 of this revenue procedure)
because of the individual's employment relationship with the institution; or
(6) Is eligible to receive one or more of the employment benefits described under
sections 79 (life insurance), 127 (qualified educational assistance), 129
(dependent care assistance programs), and 137 (adoption assistance) because
of the individual's employment relationship with the institution.
.04 Receipt of or eligibility for an employment benefit as described in
paragraph 6.03 of this revenue procedure that is mandated by state or local law
will not cause an employee to be ineligible for the safe harbor provided under
section 7 of this revenue procedure.
.05 If an individual described in section 6.01, 6.02, or 6.03 of this revenue
procedure performs services in multiple job positions, then the individual will with
respect to any of those positions be deemed to have the same employee status
with respect to all of the positions.

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SECTION 7. STANDARDS APPLICABLE TO UNDERGRADUATE AND
GRADUATE STUDENTS

.01 An individual who is a half-time undergraduate student or a half-time
graduate or professional student and who is not described in section 6.01, 6.02
or 6.03 of this revenue procedure qualifies for the student FICA exception under
this revenue procedure with respect to services performed for an institution of
higher education described in section 5 of this revenue procedure at which the
employee is enrolled or for an affiliated § 509(a)(3) organization with respect to
the institution of higher education. Services performed by a student for any other
employer are not covered by the standards of this revenue procedure.
.02 An individual is deemed to be a half-time undergraduate or half-time
graduate or professional student if the individual is not described in section 6.01,
6.02, or 6.03 of this revenue procedure and is an undergraduate or graduate
student who is in the last semester, trimester, or quarter of a course of study
requiring at least two semesters, trimesters, or quarters to complete and is
enrolled in the number of credit or unit hours needed to complete the
requirements for obtaining a degree, certificate, or other recognized educational
credential offered by that institution of higher education even if enrolled in less
than half the number required of full-time students.
.03 The determination of student status should be made at the end of the
drop-add period and may be adjusted thereafter at the institution of higher
education's option. The determination of student status for payroll periods
ending before the end of the drop-add period may be based on the number of
semester, trimester, or quarter hours being taken at the end of the registration

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period for that semester, trimester, or quarter.
.04 If an individual is described in section 7.01 or 7.02 of this revenue
procedure, then all services performed during all payroll periods of a month or
less that fall wholly or partially within the academic term are excepted from
employment under the student FICA exception.
.05 The student FICA exception does not apply to services performed by
an individual who is not enrolled in classes during school breaks of more than
five weeks (including summer breaks of more than five weeks), other than
services described in section 7.04. See Rev. Rul. 72-142, 1972-1 C.B. 317, and
Rev. Rul. 74-109, 1974-1 C.B. 288. However, the student FICA exception
applies to employment which continues during normal school breaks of 5 weeks
or less during which the individual is not eligible for the student FICA exception
pursuant to section 7.01 of this revenue procedure provided that the individual
qualifies for the student FICA exception pursuant to section 7.01 of this revenue
procedure 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.
.06 If the services performed by a student otherwise described in section
7.01 or 7.02 of this revenue procedure are covered under an agreement pursuant
to section 218 of the Act, the student FICA exception does not apply.
.07 For provisions relating to domestic service performed by a student in a
local college club, or local chapter of a college fraternity or sorority, see §
31.3121(b)(2)-1.
SECTION 8. DEFINITIONS

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For purposes of the standard contained in section 7 of this revenue
procedure, the following definitions must be used. For purposes of the following
definitions, the term "institution of higher education" means an institution of
higher education as defined in section 5 of this revenue procedure.
.01 Undergraduate student. The term "undergraduate student" has the
meaning attributed to that term in the Department of Education regulations at 34
C.F.R. § 674.2.
.02 Half-time undergraduate student. The term "half-time undergraduate
student" has the meaning attributed to that term in the Department of Education
regulations at 34 C.F.R. § 674.2.
.03 Graduate or professional student. The term "graduate or professional
student" means a student who--
(1) Is enrolled at an institution of higher education for the purpose of obtaining a
degree, certificate, or other recognized educational credential above the
baccalaureate level or is enrolled in a program leading to a professional degree;
(2) Has completed the equivalent of at least three years of full-time study at an
institution of higher education, either prior to entrance into the program or as part
of the program itself; and
(3) Is not a postdoctoral student, postdoctoral fellow, medical resident, or medical
intern.
.04 Half-time graduate or professional student. The term "half-time
graduate or professional student" means an enrolled graduate or professional
student, as defined in section 8.03 of this revenue procedure, who is carrying at

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least a half-time academic workload at an institution of higher education as
determined by that institution under its standards and practices.
SECTION 9. ANTI-ABUSE RULE
The standards in this revenue procedure must be applied in a reasonable
manner, consistent with the purpose of excluding from employment only services
that are performed as an incident to and for the purpose of pursuing a course of
study at an institution of higher education as defined in section 5 of this revenue
procedure. If the standards are inappropriately applied in a manner that conflicts
with this underlying purpose so as to manipulate or mischaracterize the nature of
the relationship between an employee and an institution of higher education,
resulting in the improper avoidance of payment of FICA taxes, then whether the
student FICA exception applies will be determined on the basis of all the facts
and circumstances (except if the employee is a full-time employee under §
31.3121(b)(10)-2(d)(3)(iii) of the final regulations), rather than on the basis of the
specific standards set forth in this revenue procedure. For example, the
standards would be inappropriately applied through the manipulation of the
relationship between employees and the institution of higher education if a
university claimed that the student FICA exception applied to research laboratory
workers, who had been full-time employees within the meaning of §
31.3121(b)(10)-2(d)(3)(iii) of the regulations, but were converted to non-full-time
employees and required to enroll in a certificate program granting six credit hours
per semester for work experience in the laboratory. As another example, if an
individual who was not a student worked for a university for many years in a job

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generally performed by non-students (but nonetheless was not described in
section 6.01, 6.02, or 6.03 of this revenue procedure), and then enrolled at the
university for six credit hours of course work per semester while continuing to
work in the same job, it may be inappropriate to apply the standards of this
revenue procedure to conclude that the individual's work has become incident to
and for the purpose of pursuing a course of study solely because the individual
enrolled for this course work. In both of these examples, whether the work is
performed incident to and for the purpose of pursuing a course of study must be
determined on the basis of all the relevant facts and circumstances.
SECTION 10. EFFECT ON OTHER PUBLISHED ITEMS
.01 Rev. Proc. 98-16, 1998-1 C.B. 403, is no longer suspended.
Employers may rely on Rev. Proc. 98-16 with respect to services performed prior
to April 1, 2005.
.02 Rev. Proc. 98-16 is modified and superseded effective April 1, 2005.
SECTION 11. EFFECTIVE DATE

This revenue procedure is applicable with respect to services performed
on or after April 1, 2005 (the date on which T.D. 9167, XX F.R. XXXX, amending
§ 31.3121(b)(10)-2 is applicable).
SECTION 12. DRAFTING INFORMATION
The principal author of this revenue procedure is Stephen Suetterlein of
the Office of Associate Chief Counsel (Tax Exempt and Government Entities).
For further information regarding this revenue procedure contact Mr. Suetterlein
at (202) 622-6040 (not a toll free call).

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