Justices Reluctant to Let Medical Residents Skip Taxes

The Wall Street Journal | November 8 – Several Supreme Court justices appeared reluctant Monday to overturn an Internal Revenue Service requirement that medical residents pay Social Security taxes.

Arguing before the court on behalf of the Mayo Clinic, lawyer Theodore B. Olson urged the court to reject the IRS rule as arbitrary. He argued that like other students, medical residents attend lectures, perform laboratory work and are focused primarily on learning.

Full-time students who work are generally exempt from Social Security taxes, but law clerks and tradesman apprentices are not. In a 2005 rule, the IRS said medical residents are full-time employees, not students.

Chief Justice John Roberts said the case touched on a “very familiar situation of an apprentice who is both an employee and a student.”

“The only way you can draw the line” between an employee and a student, said Chief Justice Roberts, “is to have somebody say: This is going to be the line. And if anybody is going to say it, it ought to be the IRS.”

The financial stakes for teaching hospitals and for the government are significant. There are currently about 100,000 medical residents nationwide. Social Security taxes on the residents’ wages would bring in around $700 million annually, according to court papers.

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