Medical residents are not exempt from paying Social Security taxes, says a recent ruling by the US Supreme Court.
The court on Jan. 11, 2011, in a unanimous opinion in “Mayo Foundation for Medical Education and Research v. United States" held that the Treasury Department acted reasonably in establishing a rule that says medical residents must pay the tax like other employees.
The ruling affects not only residents, but also their employing hospitals. An estimated $700 million in employment taxes could be collected annually.
The Social Security tax is 12.4 percent of wages, split evenly between the employer and employee. For a resident making $50,000 annually, the tax would be $3,100, which is a big hit considering living expenses and student loan repayments.
The opinion by Chief Justice John G. Roberts Jr. said the Internal Revenue Service (IRS) regulations are “a reasonable construction of what Congress has said.” The regulations say that medical residents who are full-time employees, including all residents who work more than 40 hours per week, do not qualify for the student exception under Section 3121(b)(10) of the Internal Revenue Code.
The U.S. Court of Appeals for the Eighth Circuit had previously upheld the IRS rule in a June 2009 decision.
Read the court's decision.