That point seems to have had some impact. Last week, the final rules were issued, and while they continued to take a hard line on medical interns and residents, and automatically disqualify anyone regularly working 40 hours a week or more, they offered more flexibility on other types of cases.
"We are pleased to see . . . that the final rules go back to a facts-and-circumstances approach," said Mary M. Bachinger, director of tax policy for the National Association of College and University Business Officers.
However, she cautioned, "we don't know how [IRS] agents will apply it in the field."
The rules give several examples that offer some comfort to families and students working part time on campus.
In one, the rules conclude that an undergraduate biology major who is a full-time student and who works 20 hours a week as a clerk in the college's administration office would qualify for the exemption -- in other words, not have to pay payroll taxes -- even though she might sometimes work 40 hours in a week because of an unexpected jump in the office's workload.
In another, a graduate student holding a teaching assistantship that requires her to work 20 hours a week teaching, grading papers and conducting labs -- all following guidelines and lesson plans set by a professor -- would qualify. This would be true even if the grad student got both cash wages and reduced tuition, and indeed even if she were allowed to contribute to the school's 403(b) retirement savings plan.
The agencies' analysis weighed the student's teaching load versus her own course load and concluded that, despite 403(b) eligibility, "the educational aspect of [the] relationship . . . is predominant."
Another example, that of a cosmetology student pursuing a certificate and fulfilling the school's requirement that she work part time on the school's clients to gain experience while attending class, also concludes that the exemption applies.
On the other hand, a school employee, even a part-time one, who gets a full employee benefits package while pursuing a degree does not qualify, another example indicates.
Escaping payroll taxes is a good benefit that students and their families should be aware of, and may want to take into account when choosing term-time employment. Schools generally are well aware of the exemption, since they save money too, but if there is any doubt -- or if you see a deduction for "FICA" (for Federal Insurance Contributions Act) on your pay stub -- ask.
Freshmen can think of it as Introduction to Government.
The IRS continues to pursue tax preparers and promoters it views as offering abusive shelters or improper tax preparation services. Earlier this month the agency asked a court to shut down NCK Services Inc. of Rialto, Calif., for allegedly preparing tax returns with false or inflated deductions for such things as mortgage interest and business expenses.
According to the government, since 1999 NCK has prepared returns for more than 10,000 people, charging fees ranging from $80 to $150 per return, and costing the Treasury an estimated $20 million. NCK-prepared returns for tax year 2003 analyzed by the IRS showed an average tax loss to the government of $2,230.