Supreme Court: Medical Residents Must Pay Social Security Tax

Medical residents are full-time employees, not students, and as such they must pay Social Security, or FICA, taxes, the U.S. Supreme Court ruled on Tuesday. The ruling upheld an Internal Revenue Service rule that required residents to pay Social Security tax, the Wall Street Journal reported.

Under the law, full-time students, law clerks and tradesman apprentices generally are not required to pay Social Security tax, the Journal said.

In 2005, the IRS issued a rule that required medical residents to pay the employee share of Social Security taxes. The case, Mayo Foundation for Medical Education and Research v. the United States, argued that the rule was arbitrary and sought clarification on the applicability of the student tax exemption as it pertained to medical residents.

But the high court, in a unanimous opinion, ruled that medical residents are full-time employees, not students.

"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," Chief Justice John Roberts wrote in an opinion.

The financial stakes in the case are high for teaching hospitals and the federal government, the Journal reported. The roughly 100,000 medical residents in the U.S. paying into Social Security would bring in an additional $700 million each year, the Journal reported.

The Social Security tax equals 12.4% of wages (6.2% is paid by employers and 6.2% is paid by the worker). For a medical resident earning a $50,000 stipend, that comes to $3,100 for the resident and $3,100 for the hospital. (For 2011, however, the payroll tax has been temporarily reduced to 4.2%, so the tax on a $50,000 stipend would be $2,100.)

The IRS has established a procedure for refunding FICA taxes withheld from the residents' prior to the 2005 rule change that required medical residents to pay Social Security tax. (Find more information here.)