The Federal Insurance Contributions Act (FICA ) imposes taxes on employers and on employees. These taxes, collectively termed FICA tax or social security tax, finance old age/survivors/disability insurance and medicare insurance provided under the Social Security Act.
In general, Medicare taxes are assessed and processed in essentially the same manner as FICA taxes.
The calculation of the tax is based on the amount of wages paid to an employee for employment. The law provides for several exemptions by excluding either certain services as employment or types of compensation as wages.
As a general rule, FICA tax is applicable to salary or wage payments made by U.S. employers to nonresident alien employees, unless one of the following exemptions applies.
Students Working at the Institution They Attend
Internal Revenue Code (IRC) Section 3121( b)(10) generally provides that a student who works for the school at which s/he is enrolled and regularly attends classes is exempt from the FICA tax. The exemption applies equally to US citizens and nonresident alien students.
Additional information re exemption under Section 3121( b)(10) is available in Internal Revenue Bulletin 2005-2. which focuses on student exemption FICA rules. Section 7 deals with undergraduate and graduate student concerns.
F, J, M, and Q Visaholders
IRC Section 3121(b)(19) states that the term employment for FICA tax purposes will not include service which is performed by a nonresident alien person for the period s/he is temporarily present in the US as a nonimmigrant under various subparagraphs of the Immigration and Nationality Act.
To qualify for the section 3121(b)(19) exemption,
the individual must be: (i) a nonresident alien; (ii) an F-1, J-1, M-1, or Q-1 visaholder; (iii) performing services to carry out the purpose of the primary ("-1") visaholder's visa.
The current position of the IRS is that an individual will not qualify for the section 3121(b)(19) exemption if he is a resident alien for tax purposes under either the green card test or the substantial presence test.
Any secondary visaholders (F-2, J-2, M-2, Q-2, e.g. spouse and dependent children of the primary visaholder) are not eligible for the section 3121(b)(19) exemption because the purpose of their visit to the US is to accompany the primary (-1) visaholder. not to work.
Publication 519, issued 3/07/13, pp 42-43 provides this statement relating to Students and Exchange Visitors:
"Generally, services performed by you as a nonresident alien temporarily in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act are not covered under the social security program if the services are performed to carry out the purpose for which you were admitted to the United States. This means that there will be no withholding of social security or Medicare taxes from the pay you receive for these services. These types of services are very limited, and generally include only on-campus work, practical training, and economic hardship employment."
Application of Tax Treaties to FICA Tax Withholding
Unless a treaty carries specific language allowing a FICA tax exemption, it likely will be difficult to argue that FICA tax is exempt under an income tax treaty.