Washington
The U.S. Supreme Court announced on Tuesday that it would take up a case involving a longstanding dispute between medical colleges, which argue their residents are students, and the Internal Revenue Service, which deems the residents as employees.
What's at stake is as much as $700-million that medical colleges pay annually in taxes to the federal government on behalf of their residents. If the residents are considered employees, the institutions must pay half of the amount of Social Security and Medicare taxes for the residents. If they are considered students, they and the institutions are exempted from those levies, called FICA taxes, after the federal law that authorizes their collection.
"The issue is, really, Does the IRS have the authority to say categorically that residents are not students?" said Ivy Baer, a lawyer for the Association of American Medical Colleges.
The case that the Supreme Court will consider, Mayo Foundation et al. v. United States, No. 09-837, involves the Mayo Clinic, in Rochester, Minn., and the University of Minnesota, which won a federal district-court ruling in 2008. In that opinion, the judge found that rules issued by the U.S. Treasury Department in 2005, excluding full-time medical residents from the student exception, were invalid because they were contrary to the law that created the Social Security system.
A three-judge panel of the U.S. Court of Appeals for the Eighth Circuit overturned that decision in 2009, saying the exception for students was meant only for those who worked part time while attending classes, but not medical residents, who are basically full-time employees of the teaching hospitals.
Four other federal appeals courts, in the Second, Sixth, Seventh and 11th Circuits, have ruled to the contrary, saying that the IRS must consider the situation at each institution rather than automatically applying the rule to exclude all medical residents from the student exception.
Because there is only a month left in the Supreme Court's current term, the case is likely to be argued before the justices in the fall.
A link to the brief asking the Supreme Court to review the Eighth Circuit's decision is here. The federal government's response to that brief is here.
Comments
1. vanandel - June 02, 2010 at 07:54 am
And should this exemption also apply to postdoctoral research associates / fellows in other fields, on the basis that they are also in continuing training?
2. wbgleason - June 02, 2010 at 08:48 am
This can has been kicked down the road for quite some time. It is important to realize that the "student" physicians are losing their own, plus the university's, contributions to retirement. As one of the docs put it here:
Make no mistake about this...this decision is not about hurting the residents...Basically, the U of M and most academic medical centers have been screwing residents and fellows out of their retirement benefits in order to save money.
Former U of M Resident
3. pajamas - June 02, 2010 at 10:26 am
Aren't doctors excluded from contributing to Social Security?
4. brambeus - June 02, 2010 at 06:05 pm
@pajamas: Why do think MDs, et al., should be excluded from SS contributions? If they are federal employees they are exempt, but contribute to another retirement plan, as members of Congress do not contribute to SS but to another retirement plan.
Save for the circumstances I mention above, I cannot conceive of the Congress exempting physicians and surgeons from Social Security contributions, but perhaps I err.
5. brambeus - June 02, 2010 at 06:06 pm
Now, on second thought, perhaps you jest and I was too blockheaded to see that on first reading.
6. amiller - June 02, 2010 at 08:59 pm
Medical colleges should be careful what they ask for as should residents should be wary. If the Supreme Court rules that residents should be considered students, what are the ramifications related to disability, ability to organize, work hours, GME and related regulations regarding reimbursement, workmen's comp etc etc.