By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law
The Internal Revenue Service (IRS) is now alerting hospitals that it has completed the review of their medical resident Federal Insurance Contributions Act (FICA) refund claims. The first hospitals to be notified may receive their FICA refund checks as early as May 2012. FICA deductions are a percentage of the employee's wages that are withheld to help fund both the Social Security and the Medicare Programs. The employer is also required to pay a certain amount based on the employee's wages.
According to the IRS, the refund will include the hospital's share of the FICA taxes plus interest. Additionally, the IRS has stated that the refunded FICA taxes are not taxable. However, the interest portion of the refund is taxable.
"Student Exception" Prompted FICA Medical Resident Refund Claims.
Employers of medical residents (hospitals, medical schools, etc.) began filing FICA refund claims in the 1990’s. This was based on their position that medical residents are students eligible for the FICA tax exception under Internal Revenue Code section 3121(b)(10). This is referred to as the "student exception." It applies to a student at a school, college or university who is also an employee of that school, college or university. Why the IRS took the position that medical residents were not to be treated the same as other graduate students is not clear.
The employers' FICA refund claims were for both the employer share and the employee share of the FICA tax. Until recently, the IRS suspended these refund claims because it wasn't certain that the student FICA exception applied to medical residents.
IRS Determines Medical Residents Fall Under Student Exception.
In March 2010, the IRS decided that medical residents are excepted from FICA taxes. This decision only applies to tax periods ending before April 1, 2005, when new IRS regulations went into effect. The new regulations excluded medical residents from the student exception.
The IRS is no longer accepting new medical resident FICA refund claims because the period of limitations for filing a claim has expired.
Issues Posed by IRS Medical Resident FICA Refunds.
To me, important questions that remain unanswered include:
• Will medical residents' incomes from their residency be counted toward their retirement pay or disability pay under the Social Security Act (SSA), if they obtain a refund?
• Will hospitals be required to account for this as additional income on Medicare and Medicaid cost reports in the year(s) received?
• Will hospitals (employers) properly refund the amounts due to the former residents (employees) when they receive this money from the IRS?
Contact Experienced Health Law Attorneys Today.
The attorneys of The Health Law Firm provide legal representation to medical students, residents, interns and fellows in academic disputes, graduate medical education (GME) hearings, contract negotiations, license applications, board certification applications and hearings, credential hearings, and civil and administrative litigations.
To contact The Health Law Firm, please call (407) 331-6620 or (850) 439-1001 and visit our website at www.TheHealthLawFirm.com.
Internal Revenue Service. "IRS To Honor Medical Resident FICA Refund Claims." Internal Revenue Service.(Mar. 02, 2010). Press Release. From
Internal Revenue Service. "Questions and Answers about Medical Resident FICA Refund Claims." Internal Revenue Service. (Jan. 30, 2012). From
Mirsky, Ira. "IRS to Pay Medical Resident FICA Refund Claims for Tax Periods Ending Before April 1, 2005." McDermott Will & Emery. (May 3, 2012). From
About the Author: George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law. He is the President and Managing Partner of The Health Law Firm, which has a national practice. Its main office is in the Orlando, Florida, area. www.TheHealthLawFirm.com The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone: (407) 331-6620.
Tag words: IRS, FICA, medical residents, hospital residents, FICA refund, tax refund, FICA refund claim, student exception, hospital FICA refund, hospital FICA tax claims