Medical Residents Considered Employees, Not Students, Under Federal Tax Law

Medical Residents Considered Employees, Not Students, Under Federal Tax LawOn January 11, 2011, the United States Supreme Court, in an unanimous opinion authored by Chief Justice Roberts, upheld a Treasury Department rule that established that medical residents are full-time employees, not students, for purposes of federal income taxation and Social Security coverage.

The case considered a federal law, namely the Federal Insurance Contributions Act (FICA), which exempts students from paying Social Security taxes. In 2004, the Treasury Department issued a rule that essentially stated medical residents were not students and therefore that their wages were taxable under FICA.

Petitioner Mayo Foundation for Medical Education and Research argued that this was an improper rule, and that medical residents should be treated as students under the plain language of the statute. In announcing the decision, the Court focused on the question of whether residents were “workers who study or students who work.”

The Court held that the Department’s regulation was a permissible interpretation of an ambiguous statute, and therefore that medical residents would be treated as employees for purposes of federal taxation and Social Security coverage under FICA. Chief Justice Roberts wrote, “The department certainly did not act irrationally in concluding that these doctors… are the kind of workers that Congress intended to both contribute to and benefit from the Social Security system.”

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