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Elizabeth Stawicki
St. Paul, Minn.

Court rules medical residents must pay FICA taxes

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A federal appeals court says the stipends of medical school resident physicians are subject to FICA taxes.

The decision overturns a lower court ruling that said the IRS illegally withheld FICA taxes from the stipends that the Mayo Clinic and the University of Minnesota paid its graduate school medical residents and fellows. FICA taxes help fund the Social Security system.

The question was whether the tax code viewed medical school residents more as students or full-time employees. Enrolled students regularly attending classes are exempt from paying FICA taxes.

The 8th Circuit Court of Appeals ruled that the exception was meant only for employment that was substantially less than full time, and the earnings amounts were nominal.

It said the Social Security commissioner never agreed that a medical resident working 40 hours a week or more, and earning upwards of $50,000 per year, qualified for the student exception.