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University of Minnesota "disappointed" by U.S. Supreme Court decision regarding medical resident taxation

January 11, 2011

The University of Minnesota’s general counsel, Mark Rotenberg, expressed disappointment in today’s U.S. Supreme Court decision regarding FICA taxation of medical residents (Mayo et al. vs. United States), an issue that has been litigated since the 1990’s. At issue is whether medical residents are considered students for purposes of paying FICA taxes.

"The university is disappointed in the outcome of this case, in which we sought to protect our medical residents' stipends from FICA taxation,” said Rotenberg. “Although the Court recognized that medical residents are engaged in valuable educational pursuits, the Justices decided to defer to the Internal Revenue Service's rigid rule that residents cannot possibly qualify as students under the FICA law if they work 40 hours or more per week in their residency program."

Theodore B. Olson, counsel for the university and the Mayo Clinic, added, “We are disappointed that the Supreme Court decided to uphold the Treasury Department's exclusion of medical residents from the scope of the Student Exemption enacted by Congress. As the Court itself acknowledged, medical residents are engaged in a formal and structured educational program that is an indispensable component of their medical training. The Treasury Department's regulation overlooks the important educational pursuits in which residents are engaged."

Because the university and its medical residents have been paying FICA taxes since 2005, medical residents will see no impact on their paychecks because of the decision. Had the University prevailed, however, university officials estimate that the institution and its medical residents could have received over $24 million in refunded FICA taxes since 2005.

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