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Supreme Court denies tax exemption for medical residents

By Sarah Posner

[JURIST] The US Supreme Court [official website] on Tuesday ruled [opinion, PDF] 8-0 in Mayo Foundation for Medical Research v. United States [SCOTUSblog backgrounder] that medical residents are not classified as students for the purpose of federal tax exemption. The Mayo Foundation for Medical Education and Research [official website] had sought to exempt stipends paid to doctors during the residency portion of their medical training from the taxes on wages for employees required by the Federal Insurance Contributions Act (FICA) [text]. The US Treasury Department [official website] argued that the Social Security Act does not treat medical residents as students, and therefore they should not be eligible for tax exemptions under FICA. The court found that the government's interpretation of the two statues was reasonable:

We do not doubt that Mayo's residents are engaged in a valuable educational pursuit or that they are students of their craft. The question whether they are "students" for purposes of [FICA] § 3121, however, is a different matter. Because it is one to which Congress has not directly spoken, and because the Treasury Department's rule is a reasonable construction of what Congress has said, the judgment of the Court of Appeals must be affirmed.

The case was decided by a unanimous ruling in which Justice Kagan took no part, as she was the US Solicitor General during parts of the case's history.

Medical students working for the Mayo Clinic in Rochester, Minnesota, receive stipends from the foundation and the University of Minnesota [academic website] for the medical and patient care services they provide. The district court ruled that residents qualify for the exemption and ordered the US Treasury Department to refund FICA taxes paid during the second quarter of 2005 to both Mayo and the university. The US government appealed the district court's ruling to the US Court of Appeals for the Eight Circuit. The circuit court reversed [opinion, PDF] the lower court's holding, concluding that the judiciary must "defer to the regulation limiting this exception to students who are not full-time employees because it is a permissible interpretation of the statute."

Full post as published by JURIST - The Paper Chase on January 11, 2011 (boomark / email).