In reporting today on the U.S. Supreme Court’s ruling on an issue of a criminal defendant’s Miranda rights, the Wall Street Journal mentioned at the end of the piece that the Court granted a petition for writ of certiorari of the Mayo Clinic and the University of Minnesota appealing from a U.S. Court of Appeals for the Eighth Circuit opinion.
The Wall Street Journal reported:
The justices … agreed to hear a challenge by medical colleges and teaching hospitals of a Treasury Department regulation requiring payment of Social Security taxes on behalf of medical residents.
Under a 2005 Treasury Department rule, medical residents and other “full-time employees” don’t qualify for the general student exemption from Social Security taxes. At stake is the tax treatment of medical residents nationwide, of which there are currently about 100,000, and $700 million in annual revenue to the federal government, according to court papers.
The Mayo Clinic and the University of Minnesota challenged the Treasury ruling and also have sought refunds for Social Security taxes they already paid on behalf of medical residents. The St. Louis-based Eighth U.S. Circuit Court of Appeals sided with the IRS in a ruling last June.
In their petition to the Supreme Court, the Mayo Clinic and University of Minnesota said four other federal appeals courts have sided with hospitals against the government on the issue. That leaves medical residents in the Eighth Circuit—which covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota—subject to taxes that their peers elsewhere in the U.S. don’t have to pay, they argued.
The Social Security tax represents 12.4% of wages. Half of the tax is paid by the employer and half by the employee. For a medical resident earning a $50,000 stipend, that represents $3,100 paid by the resident and $3,100 paid by the hospital.
A number of other schools, including Georgetown University, Loyola University Medical Center and the University of Tennessee submitted friend-of-the-court briefs supporting the challenge. The medical schools argue that residents are primarily there to learn, not to provide services for the hospital, which makes them more like students than employees.
The government argues that the Treasury regulation offers a “bright-line test” of 40 or more hours worked for an employee to be considered full time. Medical residents, who work anywhere from 50 to 90 hours a week, clearly meet that test, the government argued.
Whether or not to tax medical residents is “an issue of significant administrative and fiscal importance to the Treasury,” U.S. Solicitor General Elena Kagan wrote in the government’s brief opposing the petition.
Oral arguments in the case are likely to take place in the fall.