IRS Will Process Medical Residents’ FICA Refund Claims for Periods Before April 1, 2005

By Alistair M. Nevius, J.D.

From the IRS

The IRS has announced that it will accept that medical residents are exempt from FICA taxes under the student exception in Sec. 3121(b)(10) for periods ending before April 1, 2005 (IR-2010-25). The IRS said it will start contacting hospitals, universities, and medical residents who have filed FICA refund claims for those periods with more information.

Under Sec. 3121(b)(10), a student enrolled at a school, college, or university is exempt from FICA taxes on wages paid for services performed for that school, college, or university. The IRS has argued that, as a matter of law, the student exception can never apply to medical residents. After losing this argument in several court cases, the IRS promulgated regulations in 2005 saying that an institution qualifies for the student exception only if its primary purpose is to serve as a school, college, or university (T.D. 9167).

According to the IRS, services of a medical resident (and other postdoctoral students) “cannot be assumed to be incident to and for the purpose of pursuing a course of study,” and therefore the student exception does not apply (Rev. Proc. 2005-11). The 2005 regulations were held to be invalid by one federal district court, but that decision was reversed on appeal (Mayo Found. for Med. Educ. and Research, No. 06-5059 (D. Minn. 8/3/07), rev’d, No. 07-3242 (8th Cir. 6/12/09)). (For more on this topic and the district court decision, see Tax Trends, “Amended Regulations on the Student Exception from FICA Are Invalid,” 38 The Tax Adviser 698 (November 2007).)

The IRS has been holding FICA refund claims that predate the 2005 regulations from both employers and medical residents because there was a dispute over whether the student exception applied. The IRS has now decided to concede on this point for suspended refund claims that predate the 2005 regulations and will process those claims for refund.

The IRS points out that the limitation period has expired for filing a claim for periods before April 1, 2005, so any medical resident from that time who has not already filed a refund claim cannot file one now. However, those residents may be covered by an employer’s already-filed refund claim.

The IRS has published more information in the form of questions and answers on its website (,,id=219547,00.html).

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