Medical residents must pay Social Security tax

Associated Press / January 12, 2011

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WASHINGTON — The Supreme Court ruled yesterday that medical residents should be considered employees when it comes to collecting Social Security taxes.

The high court said that the IRS did not have to refund tax money collected by the Mayo Foundation of Rochester, Minn., and the University of Minnesota

Medical residents, doctors still in training, routinely work in hospitals and pay income taxes. But Mayo officials argued that residents fall under a Social Security tax exemption for student employees whose work is part of their education.

The Treasury Department took away that exemption in 2004 for medical students who work more than 40 hours per week. The Obama administration said Social Security taxes for medical residents can be as much as $700 million a year.

Mayo Clinic officials wanted the court to overturn a federal appeals court ruling and restore the student exemption for medical residents. It also wanted a refund of the money it had withheld and paid to the IRS on its residents’ stipends during the second quarter of 2005.

In arguments before the Supreme Court, Mayo’s lawyer, former solicitor general Theodore Olson, argued that the IRS’s decision that anyone who works over 40 hours a week at a hospital can no longer be classified as a student was arbitrary and capricious.

But the high court ruled unanimously that the Treasury Department had the right to take away the exemption.