Yesterday, the U.S Supreme Court decided they would hear a case regarding the payment of social security taxes for students of medical colleges and teaching hospitals. As the Wall Street Journal explains, the law being challenged is an old Treasury Department rule asserting that medical residents and other "full-time employees" cannot qualify for the general student exemption from Social Security taxes.
At stake is the tax treatment of medical residents nationwide, of which there are currently about 100,000, and $700 million in annual revenue to the federal government, according to court papers.
The Mayo Clinic and the University of Minnesota challenged the Treasury ruling and have also sought refunds for Social Security taxes they already paid on behalf of medical residents.
The St. Louis-based 8th U.S. Circuit Court of Appeals sided with the IRS in a ruling last June.
In their petition to the Supreme Court, the Mayo Clinic and University of Minnesota said four other federal appeals courts have sided with hospitals against the government on the issue. That leaves medical residents in the 8th Circuit--which covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota--subject to taxes that their peers elsewhere in the U.S. do not have to pay, they argued.
The Social Security tax represents 12.4% of wages. Half of the tax is paid by the employer and half by the employee. For a medical resident earning a $50,000 stipend, that represents $3,100 paid by the resident and $3,100 paid by the hospital.