Many health care and medical education institutions have claims pending with the IRS for refunds of the FICA (Social Security and Medicare) tax paid on wages for employed medical residents. The issue for these claims is whether the residents are “students,” and their wages accordingly exempt from FICA tax, for purposes of the student FICA exception in the Internal Revenue Code.
As we reported earlier in March of this year, the IRS announced that it would concede and pay outstanding claims for periods before April 1, 2005. The significance of the April 1, 2005 date is that new regulations went into effect on that date providing that the student exception from FICA tax does not apply if the individual works full-time.
Last summer, the Eighth Circuit Court of Appeals held that this regulation was valid in the Mayo Foundation for Medical Research and Education and the University of Minnesota cases. These institutions petitioned the Supreme Court for certiorari.
Yesterday, the United States Supreme Court granted the certiorari petition and will hear the appeal concerning the availability of the student FICA exception for medical residents after April 1, 2005. As a practical matter, the grant of certiorari means that this issue is still up in the air for the time being and institutions should consider whether they should still continue to file protective refund claims for recent years.