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U.S. Supreme Court: IRS can tax medical residents' stipends

Medical residents are not students when it comes to paying FICA taxes, and their stipends will continue to be taxed, the U.S. Supreme Court decided in January.

“The University is disappointed in the outcome of the case, in which we sought to protect medical residents’ stipends from FICA taxation,” says Mark Rotenberg, the University of Minnesota’s general counsel.

“Although the court recognized the medical residents are engaged in valuable educational pursuits,” he adds, “the justices decided to defer to the Internal Revenue Service’s rigid rule that residents cannot possibly qualify as students under the FICA law if they work 40 hours or more per week in their residency program.”

Because the University and its medical residents have been paying FICA taxes since 2005, medical residents will see no impact on their paychecks because of the decision. Had the University prevailed, however, University officials estimate that the institution and its medical residents could have received more than $24 million in refunded taxes.

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