FICA Refund for Medical Residents

The day before last one of our clients brought to us a very interesting issue that deals with medical providers.

The issue deals with FICA taxes (Social Security & Medicare) withheld from medical residents paychecks while they were in residency.  A ruling in 1998 prompted medical institutions to begin filing FICA refund claims due to the argument that the residents were falling under the “FICA student exception.”  The FICA student exception in a nutshell relates to students working for universities do not have FICA withheld from their paychecks.  The hospitals considered their residents to be falling under this same exception.

Earlier this year the IRS began notifying individuals and institutions who filed refund claims before April 1, 2005 that their refund claims would now be honored.  Some individuals filed claims but mostly it was the medical institution filing for both the employer and employee part of the FICA withholding.  The IRS sent out letters to the affected institutions in May of this year to notify them of this issue and I believe will begin processing these claims later this year.

You should contact the institution where you served your residency and ask them if they have received a letter from the IRS regarding this issue and if so were the FICA refund claims filed for the period(s) you were a resident with them.  The IRS is communicating with the institutions and individuals who filed a claim but not the individuals who will receive a refund under their institution’s refund claim.  Notifying your medical institution will let you in on whether or not you are due a refund from the IRS.

EAE

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CIRCULAR 230 DISCLAIMER: ADVICE, ARTICLES AND COMMENTARY INCLUDED HEREIN DO NOT CONSTITUTE AN OPINION AND ARE NOT INTENDED OR WRITTEN TO BE USED, AND THEY CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER.