Tax status of medical residents.

Author:Fiore, Nicholas J.

Medical (and other health care) residency programs are a staple of education and training in the United States. Once a person has graduated from medical school and passed a licensing exam, he or she is eligible to participate in a program run by a sponsoring or participating institution as a resident, gaining needed experience before becoming fully licensed to practice medicine.

In general, the IRS (and the Social Security Administration (SSA)) has treated medical residents as employees, withholding Federal Insurance Contributions Act (FICA) taxes from their salaries. At the same time, however, the Internal Revenue Code includes an exception from FICA taxes for services performed by student-employees enrolled in institutions of higher learning and regularly attending classes. The question of whether services performed by medical residents qualify for the student FICA exception (and therefore provide employers with an opportunity for claiming refunds of FICA taxes) has arisen.


The first step in resolving this issue is deciding who is the resident's common-law employer. (This is not automatically the entity that pays the resident.)

The dual functions of many graduate medical education programs complicate the issue. These programs, while training residents in a specialty, also provide their services to hospitals for patient care. Although the sponsoring institution (for example, the medical school or hospital with the overall authority and responsibility for a resident's graduate medical education) evaluates the resident's training, it may not control his or her patient care services.

An analysis to determine direction and control should focus on which institution is liable in the event of a resident's negligence and which benefits economically from his or her services, in addition to other factors.

Section 218 agreements. If the resident's employer is a state or local government entity (such as a state university or hospital), the resident's services may be covered by a "section 218 agreement."...

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