IRS Agrees to Refund Some Payroll Taxes on Medical-Resident Stipends

The Internal Revenue Service this week agreed that medical residents should be exempt from Social Security and Medicare taxes for services they performed before April 1, 2005, when new IRS regulations took effect. Within the next 90 days, the agency says, it will begin contacting hospitals, universities, and medical residents who filed claims for refunds. Medical schools and residents have been battling the IRS in court for years over the payroll taxes, known as FICA taxes, that have been levied on the annual stipends paid to doctors in training. The IRS’s announcement follows a string of court decisions that have rejected the government’s claim that medical residents are employees, not students who qualify for exemption from such taxes. The Association of American Medical Colleges issued a statement today commending the decision and vowing to continue fighting the revised regulations the IRS approved in 2005, which still classify medical residents as employees whose stipends are subject to payroll taxes.