The Supreme Court has ruled unanimously in favor of the Internal Revenue Service, saying that medical residents are full-time employees who are subject to payroll taxes and don’t qualify for the student exemption.

The case, Mayo Foundation et al v. U.S., involved the Mayo Clinic in Minnesota and a hospital operated by the University of Minnesota. In late 2004, the IRS made a rule change and said that medical residents, as doctors in training, no longer qualified for the student exemption from paying Social Security and Medicare FICA taxes. The judges, in an 8-0 decision, from which the newest justice, former Solicitor General Elena Kagan, recused herself, decided in favor of the IRS change, which will apply to residents’ stipends paid after April 1, 2005. The IRS has already decided to exempt medical student wages paid prior to April 2005 (see IRS to Honor Medical Resident FICA Refund Claims).

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