Supreme Court: Medical residents considered employees

By Jesse J. Holland, Associated Press

WASHINGTON (AP) - The Supreme Court ruled Tuesday that medical residents should be considered employees when it comes to collecting Social Security taxes.

The high court said that the IRS did not have to refund tax money collected by the Mayo Foundation of Rochester, Minn., and the University of Minnesota.

Medical residents, doctors still in training, routinely work in hospitals and pay income taxes. But Mayo officials argued that residents fall under a Social Security tax exemption for student employees whose work is part of their education.

The Treasury Department took away that exemption in 2004 for medical students who work more than 40 hours per week. The Obama administration said that Social Security taxes for medical residents can be as much as $700 million a year.

Mayo Clinic officials wanted the court to overturn a federal appeals court ruling and restore the student 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 Supreme Court, Mayo's lawyer, former solicitor general Theodore Olson, argued that the IRS' 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.

Attorneys for the University of Minnesota and Mayo issued statements saying they were "disappointed" with the court's ruling.

"As the Court itself acknowledged, medical residents are engaged in a formal and structured educational program that is an indispensable component of their medical training," said the Mayo attorney Theodore Olson. "The Treasury Department's regulation overlooks the important educational pursuits in which residents are engaged."

Justice Elena Kagan did not take part in the case because she signed the government's brief defending the IRS' position.

The Social Security case is Mayo Foundation v. United States, 09-837.

(MPR news staff contributed to this report)

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