Eliminating the exemption from Social Security taxes for graduate employees will create severe hardship for these workers and may force many to drop out of graduate school, an AFT leader told IRS officials last week.

Scott Henkel, president of the Graduate Employees Union at Michigan State University, testified at a June 16 IRS hearing on proposed changes to the student exemption from Social Security taxes, or FICA. The IRS rule change would make graduate employees liable for paying FICA on their stipends. Currently, the employees are exempt from paying this payroll tax.

Henkel, an English doctoral student whose union represents nearly 1,200 graduate teaching assistants at Michigan State, told a compelling story of the impact the rule change would have on employees like him.

With his annual take-home pay of $11,771, the average tax of about $830 would have a serious impact on his finances, he said. "Subtract the new FICA tax, $6,000 per year in rent, $800 per year for the books I need for my program, $2,760 for payment and insurance on the car that I need to get to class, and $2,400 per year for groceries, and what you get is me dropping out of graduate school," he told the panel.

Others making the case against the rule change included officers and financial experts from two universities, the National Association of College and University Business Officers and a financial accounting firm. They laid out a number of technical and legal problems with the rule change, including raising questions about the IRS's authority to make the change.

Henkel's testimony builds on ongoing AFT efforts to fight the IRS rule change. In a recent letter to the IRS, 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."

Later that same day, Henkel met with his congressional representative, Sander M. Levin (D-Mich.), to discuss the possibility of a bipartisan repeal of the proposed rule change. [Lindsay Albert]

June 21, 2004