University Hospital, a HealthAlliance hospital in Cincinnati, and some 1,000 former medical residents who trained there expect the Internal Revenue Service to pay them $20 million in refunds plus interest dating back to the mid-1990s, the Business Courier of Cincinnati reports. The refund claims became possible after the IRS conceded in March that it collected taxes from medical residents and their employers on wages that should have been exempt, based on the student exception for tax periods ending before April 1, 2005.

The regulation hinges on whether a medical resident is a student. If they are students, they are exempt from payments, also known as Federal Insurance Contributions Act (or FICA) deductions that can slash up to 14 percent of a resident's wages. The hospitals and resident each pay half.

From the second quarter of 2005 on, medical residents will be subject to FICA, because the Treasury Department views medical residents who work more than 40 hours a week as "full-time employees" who don't qualify for the general student exemption.

"Residents are clearly students," Ivy Baer, regulatory counsel for the Association of American Medical Colleges, told the Business Courier. "They have professional degrees, but they don't really learn to practice their profession independently until they finish their residency program.

Her organization is planning to file a brief on behalf of the Mayo Clinic. In Mayo Foundation v. United States, Mayo is asking the Supreme Court to overturn a federal appeals court ruling from June 2009 in the Treasury Department's favor and reinstate the exemption for residents.

To learn more:
- read the article in the Business Courier of Cincinnati
- see the Columbus Dispatch article

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