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FICA Exceptions For J-1 Exchange Visitors

by Paula N. Singer, Esq.

Under the U.S. tax rules all employees performing services in the United States are subject to U.S. social security and Medicare taxes unless an exception applies. There are three FICA exceptions that may apply to J-1 Exchange Visitors:

  1. The NRA FICA Exception
  2. The Student FICA Exception for J-1 Students
  3. FICA Exemption under a Social Security Agreement

1. The NRA FICA Exception

Section 3121(b)(19) of the Internal Revenue Code (the “Code”) provides an exception from FICA tax for services performed by nonresident aliens temporarily in the United States in principal F, J, M, or Q status for employment performed to carry out the purpose specified by the individual’s immigration status. This exception is called the NRA FICA Exception.

J-1 Exchange Visitors qualify for the NRA FICA Exception if they meet all of the following criteria:

  • They are nonresident aliens (NRAs) under the 183-Day Substantial Presence Test. J-1 Students are typically NRAs for their first 5 calendar years as a foreign student. They become resident aliens (RAs) in their 6th calendar year if they have at least 183 U.S. days. Nonstudents are typically NRAs for their first 2 calendar years as a J-1 Nonstudent. They become resident aliens in their 3rd calendar year if they have at least 183 U.S. days. J-1 Exchange Visitors may become RAs sooner if they have been in the United States in “F”, “J”, “M,” or “Q” status during a prior visit.

  • The work is authorized under the immigration rules. Authorized work is determined by the terms of the J-1 Exchange Visitor’s Program. J-1 Exchange Visitors engaged in unauthorized employment are not eligible for the NRA FICA Exception. (Unauthorized work may also jeopardize their immigration status.)

  • The work is consistent with their purpose for being in the United States. Generally all authorized employment meets this condition. However, the IRS disallows the NRA FICA Exception for individuals in derivative status who are working even if the work is authorized, for example, J-2 spouses working with an EAD. (A J-2 spouse’s purpose for being in the United States is to accompany their spouse.)

J-1 Students who fail to meet the conditions for the NRA FICA Exception because they become RAs are still potentially eligible for the Student FICA Exception for on-campus employment.

This NRA FICA Exception is more liberal for NRA students than the Student FICA Exception discussed next because it applies to on-campus employment during official breaks, authorized off-campus employment, and academic training including with a corporation.

2. The Student FICA Exception

Section 3121(b)(10) of the Code provides an exception from FICA tax for students who are employed by a school, college, or university or a Section 509(a)(3) affiliate. The exception applies regardless of the type of institution - private or public, tax-exempt or for-profit.

The exception does not require that students be a U.S. citizen in order to qualify for the FICA tax exemption. Therefore, J-1 Students, whether their residency status is resident or nonresident, are potentially eligible for the Student FICA Exception under the same rules that apply to students who are citizens.

To qualify for the Student FICA Exception, students must be enrolled and attending classes at least half-time at the institution. In order for their employment to qualify for the exception from FICA tax, it must be incident to and for the purpose of pursuing a course of study at the employer institution. Therefore, full-time employment does not qualify for the Student FICA Exception. Generally, student employment during school vacations when students may work full-time is not covered by the Student FICA Exception.  The exception applies only to work performed for the institution at which the student is enrolled.

3. FICA Exemption under a Social Security Agreement

The United States has Social Security Agreements (commonly called “Totalization Agreements”) with over 20 countries. These agreements eliminate dual coverage and dual contributions (taxes) for the same compensation. There are two situations in which an employee may be covered under another country’s social security system:

  • The employee is sent to work temporarily for an organization by a foreign employer that is an affiliate of that organization and is covered under the detached worker rule of an applicable Totalization Agreement.

  • The employee is making voluntary social security payments into the foreign country’s social security system on the wages they are earning in the U.S.

Generally, a detached worker is an employee who has come to the United States to work temporarily for the same employer for a period not expected to exceed 5 years.

In both situations, coverage by another country under a Totalization Agreement must be supported by a Certificate of Coverage that the Social Security agency of the other country has issued as evidence that the employee is covered by (and paying into) that country’s Social Security system.

Information about Totalization Agreements, including how to request a Certificate of Coverage, is available on the Social Security Administration’s website, www.socialsecurity.gov; click on “International Programs.”


About The Author

Paula Singer, Esq. chairman of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA, has over 25 years of experience providing advice and compliance services to employers on cross-border employment matters. For more information, visit www.windstar.com. For additional information, call 1-800-259-6398 or email: info@windstar.com.


The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.


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