As we announced in our April 2010 newsletter, the IRS has agreed to process FICA refund claims submitted by residency programs and individual medical trainees for wages paid through March 31, 2005. The catch is that only refund claims previously filed with the IRS will be processed, since the statute of limitations has expired for eligible individuals who have not yet submitted their pre-4/1/2005 FICA refund claims.

Why is the date of April 1, 2005 important? Early in 2005, the IRS issuedInternal Revenue Bulletin 2005-2, which outlined new regulations regarding which people employed by colleges and universities qualify as “student employees” exempt from FICA taxes. As part of this ruling, the IRS set an applicability date of April 1, 2005.

Remember, employees classified as “student employees” are exempt from paying Social Security and Medicare taxes on money earned while employed at the school. This rule was most likely put in place to help students better afford their tuition and living expenses while enrolled in either an undergraduate or graduate program. (Social security and Medicare taxes are currently withheld at a rate of 7.65% of your gross salary.)

So what action should you take in light of the post April 1, 2005 rules? For starters, please keep in mind the following:

  • These new “student employer” regulations could very well be litigated down the road, and frankly, the IRS does not have such a good track record of winning similar cases in court.
  • The statute of limitations to file the paperwork to receive a refund of FICA taxes paid during your years of training is capped at just three years from the year when the taxes are paid.

Based on these two factors, I suggest that it might make sense for you to continue to file your FICA refund claims for each year of your training that is still open. In our February 2001 newsletter, when we first wrote about this topic, we explained which tax forms you’ll need to complete and submit.

Even though the IRS feels this issue has been put to rest once and for all, there is a good chance that the FICA refund issue is not be a done deal. And on $50k of salary, you pay $3,825 of Social Security and Medicare taxes annually that might ultimately be refunded to you if the most recent regulations issued by the IRS end up being defeated in court, provided you file the required paperwork within the three year window.

As you learn about new developments, please remember to post whatever you hear or read about the FICA refund issue on ourMedical Resident FICA Forum.

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