The U.S. Supreme Court on Tuesday ruled unanimously that medical schools must treat residents as employees rather than students and therefore these students are not exempted from paying Social Security and Medicare taxes.
Mayo Foundation for Medical Education and Research v. United States was on appeal from the U.S. Court of Appeals for the Eighth Circuit, which ruled in June 2009 that the University of Minnesota, the Mayo Foundation for Medical Education and Research and the medical residents of both institutions must pay the Federal Insurance Contributions Act (FICA) tax on their stipends. ACE and a coalition of higher education and medical groups submitted a brief to the Supreme Court in August in support of Mayo and the University of Minnesota.
Colleges and universities generally do not have to pay FICA taxes for students who work on campus. Federal law provides a specific exemption for students who work for their institution if they are enrolled and regularly attending classes at that institution.
In 2004, after four federal appeals courts upheld the student exception for medical residents, the Treasury Department issued new regulations declaring medical residents to be employees rather than students and mandated that they and their institutions pay the FICA tax.
“The Supreme Court ruling in the Mayo case will have significant—and very expensive—ramifications for all teaching hospitals and universities,” said Ada Meloy, ACE’s general counsel. “It’s unfortunate that the Court did not accept arguments presented by Mayo and the university that we supported in our amicus brief.”
In a statement, Theodore B. Olson, counsel for the university and the Mayo Clinic, said, “As the Court itself acknowledged, medical residents are engaged in a formal and structured educational program that is an indispensable component of their medical training. The Treasury Department's regulation overlooks the important educational pursuits in which residents are engaged."
As University of Minnesota officials told Inside Higher Ed, because the university has been paying the taxes in accordance with the Treasury rules since 2005, “a ruling in Mayo’s favor would have netted $24 million in estimated refunds for residents.” Medical schools and universities around the country would have garnered an estimated more than $1 billion if the Supreme Court had overturned the lower court’s decision.
Mayo Foundation for Medical Education and Research v. United States
Medical Schools Must Pay Social Security Taxes for Residents, Supreme Court Rules
The Chronicle of Higher Education (Jan. 11, 2011)
High Court Rules Medical Residents Must Pay FICA Taxes
The Minneapolis Star Tribune (free reg. req) (Jan. 12, 2011)
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The New York Times (free reg. req.) (Jan. 11, 2011)