FICA Refund For Residents? Am I Getting One?

UPDATE February 2014:  From a reader:
I worked at Penn in Philadelphia for residency and fellowship and today just got a huge FICA check for about $30,000 (my spouse worked for Penn at the the same time and got about the same check)! It's half principal and half interest, and the attached info says I'll only need to pay taxes on the interest (which is obvious once I thought about it...I already paid taxes on my full salary which included this amount). 
UPDATE January 8th, 2013:  I have received my refund from the University of Nebraska Medical Center.  It was sent to me by certified mail.  For my three year residency from 2000-2003, I received a check for my principle plus interest of around $16,000. According to documentation from my training institution, I must pay taxes on the interest but not the principle. This interest has been reported to the IRS.    I am not an accountant and this is not tax advice.  Contact your accountant for more information.

This ten year wait is over.  Read on for details if you're trying to decide whether you have received or will receive a FICA refund as a resident physician before 2005.  If you have any question at all, contact your training institution and ask to speak with their business office.  Good luck!  Read on for the rest of my original post with updates over the months and years.

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I'm not sure how  this one slipped past my radar.  This is potentially a huge sum of money.  Will residents get back all their FICA tax contributions they made during their residency?  When I left residency in 2003, I remember filing paperwork with my hospital who, like many other hospitals at the time, were filing legal claims of exemption from paying FICA taxes (Social Security at 6.2% for the doctor and 6.2% for the hospital and Medicare at 1.45% for the doctor and 1.45% for the hospital).  I filled out their requested paperwork and left it at that.

I called my institution this week (December 5th, 2012)  and they told me that FICA refunds are in the final stages of being processed and should be mailed out shortly after Christmas.  Merry Christmas to me!
UPDATE August 2012:  From the IRS website:
Employers (typically hospitals and medical schools) and individual taxpayers (medical residents) began filing FICA refund claims in the 1990’s, based on their position that medical residents are students eligible for the FICA tax exception under Internal Revenue Code section 3121(b)(10). This is referred to as the student exception and may apply to a student at a school, college or university who is also an employee of that school, college or university. The employer’s FICA refund claims were for both the employer share and the employee share of the FICA tax. In some cases, individual medical residents filed their own claim for the employee share of the FICA tax. The IRS held the claims in suspense because there was a dispute as to whether the student FICA exception applied. The IRS has made an administrative determination to accept the position that medical residents are excepted from FICA taxes for tax periods ending before April 1, 2005, when new IRS regulations went into effect.

For hospitals, that's 7.65% of  an average resident salary of $40,000 per year (my assumed average in the early 2000's) per resident they were forced to pay. That's about $3,000 paid per resident per year by the hospital and $3,000 per year for the resident physician in training.

Over the next seven years I have received several follow up claim letters from my hospital I trained at asking me to fill out certain paperwork and return it to the hospital for them to file once all the legal maneuvering was complete.  Apparently, we can chalk up a victory for hospitals and residents.  It appears the IRS has ruled in favor of hospitals and doctors.

Going through some old emails in my hospital email system (which I never read) I came across an article from The Hospitalist in my email inbox.  What did the article say?  Basically, for years hospitals have argued that they should have always been eligible for the "student exemption" on FICA taxes paid.  And now, apparently the IRS agrees.  From the IRS website March 2nd,  2010 (link no longer active):
WASHINGTON — The Internal Revenue Service has made an administrative determination to accept the position that medical residents are excepted from FICA taxes based on the student exception for tax periods ending before April 1, 2005, when new IRS regulations went into effect.

The IRS will, within 90 days, begin contacting hospitals, universities and medical residents who filed FICA (Social Security and Medicare tax) refund claims for these periods with more information and procedures. Employers and individuals with pending claims do not need to take any action at this time.

For more information, call 1-800-919-1703 or visit www.irs.gov/charities and click on Medical Resident FICA Refund Claims. Taxpayers with currently pending suits should contact the Department of Justice attorney assigned to the case.
It's now been 90 days since that ruling.  I suppose I should be hearing from my hospital any day.

Looks like Happy and company will be getting a $9,000 bonus check for money that should have never been withheld in the first place.  I wonder if I'll get interest for my ten year loan.    This appears to be the only economic legal victory for doctors in over 40 years.

UPDATE 7/10/10.  I called my residency hospital and spoke with the folks in charge of the reimbursement.  They said the government might be trying to pay less than 100% of the refund and if that was the case the hospital would fight it and it might delay my refund.  But they said the wheels are turning.

Update 8/5/10. I received another request from my hospital for paperwork to file for a refund on my behalf, including "statutory interest". I'll keep you posted.


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