This was successfully posted to your pofile.
This box will close automatically in a few seconds. Close this window
We don't have an e-mail address on file for you. To use AAFP Connection, you must have an e-mail address in our records. Click Here
U.S. Supreme Court Rules Against Residents Claiming FICA Exemption
Court Accepts Treasury Department's Rule Stating Residents Are 'Full-time Employees'
By Barbara Bein
FICA taxes equal 15.3 percent of wages, of which 12.4 percent goes to Social Security. Generally, of that total amount, half is paid by the employer and half by the employee. Thus, a medical resident who earns a $40,000 annual stipend pays $3,060 and the hospital/sponsoring institution pays $3,060 in total FICA taxes.
Original Case Filing
In its case, the Mayo Clinic asserted that regulations promulgated by the Treasury Department in 2004 that categorically defined a full-time employee as one who works 40 hours a week or more are invalid.
Previously, the department had accepted the view of residencies' sponsoring institutions that residents fall under the FICA statute enacted in 1939 that specifically exempts individuals who work for their school, college or university from paying FICA taxes so long as they are enrolled and regularly attending classes at that institution.
Social Security officials questioned that view, however, and in 1990 attempted -- unsuccessfully -- to collect back payroll taxes from the University of Minnesota on behalf of its residents. That attempt was stymied by a ruling by the U.S. Court of Appeals for the Eighth Circuit, which held that residents' stipends were exempt under the student provision.
In its 2004 rule, the Treasury Department sought to close that student loophole, offering as an example a medical resident whose schedule requires him or her to perform patient care services 40 or more hours a week. According to rule, the services provided by such a full-time employee could not be considered "incident to and for the purpose of pursuing a course of study," a prerequisite for the student FICA exemption. The department explicitly discounted the fact that such services "may have an educational, instructional or training aspect."
Mayo argued that the rule failed to take into account the fact that residents are, in fact, trained primarily through hands-on experience, saying that the department arbitrarily distinguished between hands-on training and classroom instruction.
Whereas the district court agreed with the Mayo Clinic that the Treasury Department's full-time rule was inconsistent with language describing "employment" contained in the original FICA legislation, the same Eighth Circuit Court of Appeals that ruled in favor of residencies' position in 1990 this time reversed the lower court, saying that the department's regulation was a "permissible interpretation of an ambiguous statute."
High Court's Finding
The high court disagreed, supporting the Treasury Department's determination that "employees who are working enough hours to be considered full-time employees have filled the conventional measure of available time with work, and not study."
Moreover, the court said in its opinion, the Treasury Department did not act irrationally in concluding that resident physicians "who work long hours, serve as highly skilled professionals and typically share some or all of the terms of employment of career employees are the kind of workers that the U.S. Congress intended to both contribute to, and benefit from, the Social Security system."
Impact on Family Medicine
"The impact on teaching hospitals and community health centers will also be very modest, since I believe most took the conservative approach to the unsettled question and paid the FICA anyway," Pugno added.
Expanded Tax Relief on State Loan Repayment, Forgiveness Programs Benefits Physicians, Medically Underserved Individuals
Health Care Reform Provision May Prompt More Service Commitments
IRS to Refund Payroll Taxes for Some Medical Residents
Agency Concedes That Residents Met Student Exception Requirements
Supreme Court Strikes Down Residents' FICA Exemption