The Internal Revenue Service (IRS) has agreed to return Social Security and Medicare taxes collected from residents and teaching hospitals that filed claims prior to April 1, 2005.  Litigation is continuing about refund claims filed after that date. 

As to the claims filed prior to April 1, 2005, the IRS "will, within 90 days, begin contacting hospitals, universities and medical residents who filed FICA (Social Security and Medicare tax) refund claims for those periods with more information and procedures.  Employers and individuals with pending claims do not need to take any action at this time."

On April 1, 2005, a new IRS ruling went into effect stating that individuals who work 40 hours a week or more for a schoool, college, or university are not eligible for the student exemption.

The Association  of American Medical Colleges (AAMC) challenged the IRS ruling that went into effect April 1, 2005, and has filed a friend-of-the-court brief in support of the University of Minnesota and the Mayo Foundation in their request to the U.S. Supreme Court to hear the case Mayo Foundation for Medical Education and Research and the Regents of the University of Minnesota v. United States.

That case challenges the 2005 IRS ruling, asserting that the original FICA governing statute exempts students from FICA taxes and indicates that student status—as opposed to employee status—be determined by the facts and circumstances of each institution.

“The AAMC has always strongly believed that residents are students and that their relationship with U.S. teaching hospitals is educational,” Kirch said. “We hope that the Court will agree to hear this important case and provide the opportunity to demonstrate that residents are first and foremost learners, honing their professional skills so they can advance patient care.”

We will continue to provide updates on this issue.