Academic journal article Journal of Accountancy

Medical Residents Not Subject to FICA

Academic journal article Journal of Accountancy

Medical Residents Not Subject to FICA

Article excerpt

Although circuits have split on the issue previously, two recent decisions concluded that medical residents are not subject to FICA, based on the student exception of IRC [section] 3121(b)(10). The provision states that the term "employment" "shall not include ... service(s) performed in the employ of ... a school, college, or university ... if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university."

In August 2008, the U.S. District Court of South Dakota examined the FICA issue for two residency programs: an internal medicine program sponsored by the University of South Dakota School of Medicine and the Sioux Falls Family Medicine Residency Program operated by the Center for Family Medicine (CFM), a nonprofit corporation. Then, on Sept. 23, 2008, the Seventh Circuit upheld an exception from FICA for medical residents at the University of Chicago Hospitals.

In both cases, the IRS said none of the three programs was a school, college or university In the South Dakota case, the government argued that the programs did not identify themselves by those terms and did not grant degrees. The IRS also said medical residents are not students because they do not enroll or regularly attend class, their purpose is to earn a livelihood rather than an education, and the amount of medical services they provide precludes student status.

Both courts disagreed. The South Dakota court, whose decision is appealable to the Eighth Circuit, looked to the 1998 holding by that circuit in Minnesota v. Apfel (151 F.3d 742) and, more recently, in United States v. …

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