SUBJECT:

New Requirements for Student Employee Exemption from FICA Withholding

Currently, all University of California student employees are treated as
exempt from FICA and Medicare withholding. The Internal Revenue
Service, however, has issued new interpretations that require
universities to check each student employee's number of registered units
and appointment percentage.

Effective with April 1995 earnings, new requirements and procedures
for determining student employee FICA exemption will be implemented as
follows:

Exemption Eligibility Criteria: To be exempt from FICA withholding,
student employees must meet the following eligibility criteria:
1.  Have appointments (both fixed and variable) that sum to 50% time
   or less for each pay period AND

2.  Be registered for a minimum of 12 units.

Students advanced to Ph.D. candidacy are required to be registered to
qualify for exemption but there is no minimum number of units.

These requirements do not apply to students on F-1 and J-1 visas
because by federal law they are exempt from FICA and Medicare.

Verification of Registration: The verification of a student
employee's registered units will be performed based on a computer
interface between the campus Integrated Student Information System
(ISIS) and the Payroll/Personnel System (PPS), using name, social
security number, and birthdate.

Verification of Appointment Percentage: The verification that the sum
of a student employee's appointments is not greater than 50% will be
done automatically each pay period by a PPS computer program.

Departments that have student employees with multiple appointments
should correct the percentages on the appointments and distributions to
reflect the estimated percentages of time the students will actually
work. For students employed in staff titles, these corrections should
be forwarded to the Job Opportunities Program, Mail Code 0335 by March
6, 1995. For students appointed in academic titles, corrections should
be forwarded to the Office of Graduate Studies and Research or the
appropriate Provost's office by early April.

Defined Contribution Plan: Student employees who do not satisfy both
of the above criteria will be subject to withholding in the same manner
as other non-career employees. Specifically, they would be required to
contribute 7.5% of their gross earnings to the Defined Contribution
Plan (DCP), as an alternative to Social Security contributions, and
1.45% to Medicare. Employing departments will be assessed 1.68% of
salary for Medicare and Unemployment Insurance in addition to the
current 0.97% for Workers' Compensation.

Student employees who are non-exempt will be subject to the same DCP
rules and may select the same investment options as other non-career
employees.

Student Notification: Information notices are being prepared and will
be mailed to departments for distribution to student employees about
the end of February. The Associated Students and Graduate Student
Association are being informed, and notices will be placed in The
Guardian and over student e-mail networks.

Student leaders tell us the best method of student notification is
"word of mouth," so departments are encouraged to personally inform
student employees in their departments. In particular, they need to
be told the importance of registering on time for at least 12 units,
of resolving any problems with registration (such as unpaid library
fines), and of understanding that accepting appointments that sum more
than 50% time in a given pay period means they will have 8.95% taxes
withheld from their entire paycheck for that period, not just the
portion over 50% time.

Further Information: Detailed implementation procedures are being
developed and will be provided to departments as soon as they are
available--probably mid-March. Campus information meetings on these
new procedures will be held in late March.

Steven W. Relyea Vice Chancellor- Business Affairs Richard Attiyeh Vice Chancellor- Research and Dean Joseph W. Watson Vice Chancellor- Student Affairs of Graduate Studies