Penn State News

January 14, 2000
University Park, Pa. -- Starting this summer, Penn State's graduate teaching assistants and research assistants will start seeing something extra in their paychecks each month -- specifically, an increase of 7.65 percent.

The increase will begin July 1, as a result of the state's adoption last year of a 1998 federal law allowing the elimination of payroll deductions for the Federal Insurance Contributions Act (FICA) tax for students who teach or do research at public colleges and universities and for student workers at public schools. FICA deductions are used to finance the nation's Social Security system.

Since 1995, Penn State has led a statewide effort to eliminate the tax for college and university students.

"We try hard in The Graduate School to understand the concerns of our students and wherever possible to improve the environment for learning at Penn State," said Eva Pell, recently named vice president for research and dean of The Graduate School. "The elimination of this tax for graduate students will increase their disposable income at a time when it's very much needed."

The University also will save money when the tax exemption takes effect. Penn State's savings will be applied in part to creating more University fellowships, Pell said.

Since the FICA tax deduction rate is 7.65 percent, Penn State TAs or RAs receiving a nine-month stipend of $11,000 will see an increase of $93.50 a month or nearly $842 a year in their paychecks. The elimination of the deduction also will benefit undergraduate student workers at Penn State.

Penn State and other colleges and universities were successful in obtaining the FICA exemption partly because of the argument that graduate students are first and foremost students -- not employees. According to this principle, the primary activity of graduate students is to get an education, though at the same time they are providing instructional and other educational assistance.

In 1995, Penn State began and led an effort to obtain the FICA exemption, enlisting the aid of members of Congress from Pennsylvania and Texas. One of the key Penn State players in the effort was Rodney A. Erickson -- then vice president for research and dean of The Graduate School, now Penn State's executive vice president and provost. In both 1996 and 1997, federal legislation to eliminate the deduction was introduced, but neither bill was adopted.

In 1998 Penn State and its Office of Governmental Affairs stepped up its efforts, leading a team of universities in Texas and in Pennsylvania, and federal legislation to eliminate the deduction was passed in October 1998. In 1999, Pennsylvania Gov. Tom Ridge approved the FICA exemption for all public schools in the state, including colleges and universities.

The tax cut will reportedly affect more than 27,000 students at public high schools, colleges and universities in Pennsylvania. In addition to Penn State, participating institutions include State System of Higher Education (SSHE) universities, community colleges and Pennsylvania's public high schools.

At Penn State, there are some 12,000 students -- of which 2,500 are graduate students -- receiving stipends or wages each year from the University. As a result of the law, the combined savings to Penn State students and the University will total approximately $6 million a year.