IRS to Refund Payroll Taxes for Some Medical Residents

Agency Concedes That Residents Met Student Exception Requirements

April 02, 2010 04:05 pm News Staff

The Internal Revenue Service has decided that medical residents are exempt from paying Social Security and Medicare payroll taxes for tax periods that ended before April 1, 2005.

In a March 2 press release, the IRS said it has accepted the position that medical residents are excluded from the taxes based on the student exception.

Hospitals, medical schools and medical residents began filing refund claims for Federal Insurance Contributions Act, or FICA, taxes in the 1990s, arguing that residents are students who are eligible for the student exception to FICA taxes. These taxes fund Social Security and Medicare.

The IRS, which disputed the argument that the student FICA exception applied, held the claims until the issue was resolved. After losing several court cases on the matter, the IRS made an administrative determination to accept the position that medical residents are excluded from FICA taxes for tax periods before April 1, 2005. This is the date when new IRS regulations went into effect that specifically exclude any employee who works 40 hours a week or more for a school, college or university from eligibility for the student exception.

Institutions that employed medical residents, as well as individual medical residents, are eligible to receive refunds if they filed FICA refund claims on time. The period for filing a claim has expired, but individuals who were medical residents before April 1, 2005, and who did not file an individual FICA refund claim, may be covered by a FICA refund claim filed by their employer. Contact your employer or former employer to see if they filed a FICA refund claim.

The IRS will contact hospitals, universities and medical residents who filed refund claims for FICA taxes regarding their refunds.