Employers (typically hospitals and medical schools) and individual taxpayers (medical residents) began filing FICA refund claims in the 1990’s, based on their position that medical residents are students eligible for the FICA tax exception that applies to students at a school, college or university who are also employees of that school, college or university.
The employer’s FICA refund claims were for both the employer share and the employee share of the FICA tax. Some individual medical residents also filed their own claims for the employee share of the FICA tax. The IRS has been holding these claims in suspense because there was a dispute as to whether the student FICA exception applied.
On March 2, 2010, the IRS released IR-2010-25 announcing that it made an administrative determination to accept the position that medical residents are exempt from FICA taxes based on the student exception [IRC 3121(b)(10)] for tax periods ending before April 1, 2005 when new IRS regulations went into effect.
On April 1, 2005, new regulations regarding the student FICA exception became effective. One part of these regulations states that an employee who works 40 hours or more (full-time employee) for a school, college or university is not eligible for the student exception. This part of the regulations excludes medical residents from the student exception
Since the statute of limitations for filing a claim for tax periods before April 1, 2005 has expired, it is too late to file a claim for periods before April 1, 2005. If you are or were a medical resident and you did not file an individual FICA refund claim, you may be covered by a FICA refund claim filed by your employer for the period during which you were a medical resident. You would need to contact your employer (or former employer) to see if they filed a FICA refund claim.
The IRS has indicated that within 90 days it will begin contacting hospitals, universities and medical residents who filed FICA refund claims for these periods with more information and procedures. Thus, employers and individuals with pending claims do not need to take any action at this time.
If you have questions regarding this administrative determination made by the IRS and how it may affect you or your facility, please contact one of our shareholders at (215) 665-3960.