The Supreme Court has agreed to hear a case next term that would decide whether medical residents should be considered students or employees when collecting Social Security taxes.
The case, Mayo Foundation for Medical Education and Research v. United States, involves a rule change by the Treasury Department in 2005 that said medical residents are full-time employees who do not qualify for a student exemption from the taxes. The Treasury removed the exemption for students who work over 40 hours per week, and said hospitals need to withhold FICA taxes from their paychecks. The Mayo Clinic and the University of Minnesota have challenged the regulation and requested refunds of the FICA taxes they have paid on behalf of residents since the rule change, arguing that the residents qualified for the student exemption.
A district court rejected the governments contention that residents were categorically ineligible for the student exception and held that the Treasury regulations implementing the FICA exception should require a case-by-case examination of student status.
The Treasury Department amended its regulations, and the case went back to a district court, which struck down the Treasurys full-time employee rule. The U.S. Circuit Court of Appeals, however, reversed the district court, and agreed with the IRS last June. The Mayo Clinic and the university then appealed the ruling to the Supreme Court.
The circuits are irreconcilably divided on the question whether medical residents can be categorically excluded from the Student Exemption to the Federal Insurance Contribution Act, they wrote.
Solicitor General and Supreme Court nominee Elena Kagan and Justice Department officials filed a brief opposing the petition, writing, The application of the student exemption is an issue of significant administrative and fiscal importance to the Treasury, involving as much as $700 million annually in FICA taxes for medical residents alone.
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