The Supreme Court ruled Tuesday that medical residents are employees for purposes of collecting Social Security taxes, dealing a blow to the universities that had fought to protect residents’ student status.
In its ruling, the high court said the Internal Revenue Service did not have to refund tax money collected by the Mayo Foundation of Rochester, Minn., and the University of Minnesota.
The IRS considers students whose work is part of their education exempt from paying Social Security taxes, but in 2004 the Treasury Department decided that doctors in training who work more than 40 hours a week were no longer exempt from paying toward their Social Security benefits.
Locally, Johns Hopkins University, Harbor Hospital, Good Samaritan Hospital, Franklin Square Hospital Center and Union Memorial Hospital filed an amici curiae brief in support of the petitioners signed by 32 other medical institutions across the country.
Nationwide, roughly 100,000 people participate in medical residency programs, and the revenue from their Social Security taxes amounts to about $700 million a year. Those taxes make up 12.4 percent of wages, with half paid by the employee and the other half paid by the employer.
Maryland has two major teaching hospitals — Johns Hopkins and the University of Maryland Medical Center, which has 564 medical residents. Johns Hopkins did not respond to requests for information by press time.
Harbor, Good Samaritan, Franklin Square and Union Memorial are all part of the MedStar Health system, which also includes Georgetown University Hospital. Some of the residents from Georgetown are placed at MedStar’s Maryland hospitals.
Mayo Clinic officials asked the Supreme Court to overturn a federal appeals court ruling and restore the student tax exemption for medical residents. It also wanted a refund of the money it had withheld and paid to the IRS on its residents’ stipends during the second quarter of 2005.
In arguments before the court, Mayo’s lawyer, former Solicitor General Theodore Olson, argued that the decision that anyone who works over 40 hours a week at a hospital can no longer be classified as a student was arbitrary and capricious.
But the high court ruled unanimously that the Treasury Department had the right to take away the exemption.
“The department certainly did not act irrationally in concluding that these doctors — ‘who work long hours, serve as high skilled professionals, and typically share some or all of the terms of employment of career employees’ — are the kind of workers that Congress intended to both contribute and benefit from the Social Security system,” said Chief Justice John Roberts, who wrote the opinion for the court.
Justice Elena Kagan did not take part in the case because she signed the government’s brief defending the IRS’ position.
The case is Mayo Foundation v. United States, 09-837.
The Daily Record’s Danielle Ulman contributed to this report. She can be contacted at [email protected].