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Client Alert

Medical Residents FICA Litigation: Supreme Court Rules That Residents Are Not Students

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Last week, in Mayo Foundation for Medical Education and Research v. United States, No. 09-837, the Supreme Court upheld the validity of a Treasury Department regulation that makes medical residents categorically ineligible for the so-called “student exception” to FICA taxes. The regulation was enacted by the Department after years of litigation regarding whether medical residents – and the academic medical centers that train them – are exempt from paying FICA taxes on medical resident stipends.

Under the regulation, any employee of a “school, college or university” who works 40 hour or more hours a week is ineligible for the student exception, regardless of educational value of the work performed. Due to the rigorous nature of residency training, the regulation has the practical effect of subjecting all medical residents to FICA taxes. Applying the deferential Chevron standard for review of administrative regulations, the Court held that the Treasury Department “did not act irrationally in concluding that these doctors – ‘who work long hours, serve as highly skilled professionals, and typically share some or all of the terms of employment of career employees’ – are the kind of workers that Congress intended to both contribute to and benefit from the Social Security system.” 
 
The decision will likely have a significant impact in the academic medical community beyond the narrow tax issue presented. In particular, the ruling is almost certain to breathe new life into long-standing efforts to unionize medical residents. Academic medical centers may also need to re-evaluate the structure of their residency programs and review their policies and procedures to ensure that they are in full compliance with state and federal employment laws. More generally, colleges and universities may need to examine the tax status of other students who also serve in a quasi-professional role, such as graduate teaching or research assistants. 

If you have any questions concerning the issues raised in this alert, please contact the authors of this alert, Brent Powell, David Hamilton, Tom Stukes, Mark Horoschak or Jimmy Powell or any of our other experienced Health Care attorneys.

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