The AFT and other members of the higher education community are vigorously fighting an IRS rule change that could make graduate employees liable for paying Social Security taxes, or FICA, on their stipends. Currently, the employees are exempt from paying this payroll tax.

The IRS will decide whether or not to implement the new rule following a comment period and a public hearing on June 16.  In a letter to the IRS seeking an adjustment to the new rule language, AFT in-house counsel David Strom outlined the union's opposition to the change, noting that it "punishes graduate teaching and research assistants…for receiving benefits such as paid vacation or sick leave even though the benefits do not change the temporal nature of their employment."

The IRS says the proposed rule was written to clarify that the stipends paid to medical residents are not tax-exempt.  Although the IRS says it still considers graduate employees exempt, Strom says the new rule is so broadly written that it could be applied to them.

According to the new rule, no student worker classified as a "career employee" will be eligible for the FICA exemption.  The IRS calls anyone who works more than 40 hours per week; who also falls under the classification of a professional employee; or who receives benefits such as paid vacation or life insurance, a "career employee."  Many graduate student employees fit into one or all of these categories, even though their jobs are clearly temporary and therefore not career jobs.

Also, if the new rule goes into effect, it would be implemented retroactively to Feb. 25, 2004.  This would force colleges to withhold double FICA taxes from graduate employee paychecks for a period and create unexpected financial hardship for the graduate employees, noted Strom in his letter.

A member of the Graduate Employee Union at Michigan State University, AFT local 6196, will present testimony at the public hearing on June 16. [Brian Dolber]