Supreme Court will hear Mayo case re: Social Security tax status of medical residents

This fall or winter, the Supreme Court will hear an appeal from the Mayo Clinic in Rochester, Minn., and the University of Minnesota to examine whether medical residents are students--or employees who have to pay Social Security taxes, reports the Associated Press (AP) in a Los Angeles Times article. The case could impact approximately 100,000 medical residents nationwide, according to a Dow Jones Newswire report at the Wall Street Journal. In addition, some $700 million in annual federal tax revenues hinges on the outcome.

Mayo has long contended that residents are student employees who should qualify for a Social Security tax exemption. But in 2005 the Treasury Department ruled that medical residents who work more than 40 hours per week are in fact "full-time employees" who don't qualify for the general student exemption. In Mayo Foundation v. United States, Mayo is asking the Supreme Court to overturn a federal appeals court ruling from last June in the Treasury Department's favor and reinstate the exemption for residents. Mayo also seeks a refund of Social Security taxes the provider has paid for residents since 2005.

The petition filed with the court points out that, while the 8th U.S. Circuit Court of Appeals sided with the IRS and the Treasury Department, four other federal appeals courts have agreed with hospitals about the tax status of medical residents. Consequently, medical residents in states covered by the 8th Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) face taxes that other residents across the nation are exempt from, Mayo contends.

"We are very pleased that the Supreme Court Justices will now give this case very careful consideration," University General Counsel Mark Rotenberg tells the Post-Bulletin. "The government itself has acknowledged that the question in this case involves billions of dollars in pending tax refund claims, and hundreds of millions of dollars per year in FICA taxes that must come from increasingly scarce medical education funds."

To learn more:
- read this AP article at the Los Angeles Times
- read this Dow Jones Newswire report at the Wall Street Journal
- take a look at this Post-Bulletin article
- read this Minnesota Daily article
- read this InsideHigherEd article