Medical Residents and FICA

Medical residents may receive stipends for work they perform in the course of their studies. Are these stipends treated as wages for the purposes of Social Security and Medicare (FICA) taxes? It depends on who you ask.

IRS position

Residents are subject to FICA. The tax law has a student exemption for services performed at a college or university by someone enrolled and regularly attending classes there. In 2004, a regulation on this point was amended to allow the exemption only if the services are incidental to the student’s education.

Any student who normally works 40 hours a week or more is a full-time employee and cannot rely on the student exemption.

The IRS maintains that medical residents are full-time hospital employees and cannot qualify for the student exemption.

Court decision

Residents aren’t subject to FICA. A recent federal district court says the stipends are exempt. This court applied the reasoning of a previous appellate court decision, which requires a case-by-case examination of the facts. The district court concluded that residents providing services at a university teaching hospital in Minnesota are not employees of the hospital; they work for the university and are supervised and controlled by faculty-physicians. Also, the patient-services performed by the residents are part of their medical education.

Caution: Not all courts agree with this decision. For example, a previous decision in Florida said that stipends are subject to FICA. Because there is a split in the federal circuits (the 11^th Circuit, which includes Florida, agrees with the IRS, while the 8^th Circuit, which includes Minnesota, does not), the U.S. Supreme Court may eventually decide the issue.

Source: Regents of the University of Minnesota, DC Minn, 2008-1 USTC õ50,262; Mayo Foundation, DC Minn, 2007-2 USTC 50,577.