Mayo Advocates Social Security Tax Exemptions for Residents

Janice Simmons, August 17, 2010

The American Hospital Association has urged the U.S. Supreme Court in Mayo Foundation for Medical Education v. U.S., to reverse an Internal Revenue rule addressing whether medical residents qualify as students for purposes of receiving exemptions from Social Security taxes. The court agreed to hear the case on June 1.

The dispute comes from amended regulations that the Internal Revenue Service issued in 2005 that barred residents who worked at least 40 hours a week—along with their medical educational institutions—from claiming the student tax exemption under the Federal Insurance Contributions Act.

Before the IRS changes, federal law had permitted evaluation on whether the student exceptions applied on a case-by-case basis. This meant reviewing a qualifying school's curriculum, along with a student's relationship to the employer.

AHA says when teaching hospitals and the government have litigated the specific issue about whether medical residents fall within the longstanding definition that keeps in mind their long hours of supervised patient care, "courts appear to have uniformly ruled in favor of the hospitals."

This has meant that that the amended IRS regulation "subjects teaching hospitals to Social Security taxation based upon an arbitrary and immaterial fact," AHA says. Consequently, the practical effect of the amended regulation is to "divert the scarce resources" of the country's "teaching hospitals and medical schools from their crucial missions of patient care, physician training, and medical research."

Janice Simmons Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at
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