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FICA Tax on Student Workers Could be Used to Finance Health Care Reform

NAICU Washington Update

May 31, 2009

The Senate Finance Committee has released a list of possible offsets or "financing options" to fund the massive health care reform legislation being considered. On the list is a proposal to impose FICA taxes on college students earning more than $1,090 a year through employment at their institution. The list does not, however, include President Obama's proposal to limit the charitable deduction.

The student-income proposal is worded as a simple codification of IRS regulations in defining the terms "schools, colleges, and universities" and "student." The regulations were intended to eliminate the FICA exemption for medical residents at university-owned teaching hospitals. (Medical residents at free-standing hospitals already have to pay FICA taxes.) However, the proposal being considered by the Finance Committee appears to go beyond medical residents, and would apply to all student workers. The proposal is not in legislative language form and hasn't been scored, so it's not clear just how much revenue it might raise.

Currently, student workers at colleges and universities and students are generally exempt from FICA taxes, with no dollar limit on earnings. NAICU has always advocated maintaining this important exemption. The Finance Committee proposal is only at the discussion stage and hasn't been adopted as a formal "pay-for." However, if it were adopted in it's current form, it would impose a new tax on students earning minimal wages, and would directly violate President Obama's pledge to adopt no new taxes on those making under $200,000 annually.

It appears that health care reform will be at the top of the Senate's legislative agenda this summer. The possible financing options will likely change as the bill evolves, legislative language is introduced, and costs of the reform becomes clearer.

Contact

Karin Johns
karin@naicu.edu