The School of Medicine is receiving inquiries from former residents asking whether UAB filed protective FICA refund claims for itself and on behalf of the residents. UAB did not file protective FICA refund claims on behalf of itself or its residents, and it is too late to file these claims. Therefore, neither UAB nor UAB residents will be receiving any FICA refunds. We know this is disappointing but hope you understand that UAB evaluated the issue in good faith and made a decision at the time that it thought was best for everyone.
Background: IRS regulations provide that certain student employees who provide services that are "incident to and for the purpose of pursuing a course of study" and whose educational relationship with the school predominates over the person's employee relationship are exempt from FICA ("Student FICA Exemption"). In the 1990s, some hospitals, medical schools and medical residents began filing FICA refund claims based on their position that medical residents were students eligible for the Student FICA Exemption. The IRS did not process these refund requests because they took the position that medical residents did not qualify for the Exemption. Mayo and Mount Sinai sued the IRS, requesting them to process and grant the refund requests. The courts issued multiple decisions, some in favor of issuing the refunds, and others in favor of the IRS. In 2005, the IRS published a regulation expressly stating medical residents did not qualify for the student exception. In 2011, the U.S. Supreme Court ruled that the 2005 regulation was valid and that medical residents in programs 2005 and after did not qualify for the Student FICA Exemption.
After the Supreme Court's ruling in 2011, the IRS made an administrative determination to handle the previously filed refund requests by accepting the position that medical residents are excepted from FICA taxes for tax periods ending before April 1, 2005, when the IRS published regulations expressly stating residents do not qualify for the student exception. The IRS is now processing these refund requests, which is resulting in residents receiving refunds.
Basis for UAB Decision: UAB evaluated this issue in 1998 and, based on recommendations from outside legal counsel, determined it should not file protective refund claims because:
- Unlike Mayo, UAB did not enroll residents as students; residents did not register for classes, and residents did not pay tuition.
- Unlike Mayo, UAB's Section 218 Agreement (state agencies must sign Section 218 Agreements with the federal government that specify which employees will participate in Social Security) included medical residents in the class of UAB employees that would participate in social security/FICA.
- At the time, the tests applied by the court cases in the 11th Circuit (binding on UAB) would have resulted in UAB residents not qualifying for the student exemption.
Although UAB filed refund claims for 2006-2009, we expect these to be denied because the Supreme Court upheld the IRS’s 2005 regulation stating that residents must pay FICA tax. We will continue to monitor this issue and report any changes on the website.
Read more on the Supreme Court decision.
Although UAB will monitor the IRS's response to this decision, at this time, UAB does not intend to file any additional refund claims on behalf of medical residents or to contest the IRS' expected denial of the refund claims previously filed. If UAB's position changes, we will let you know via this website. As a reminder, UAB did not file protective refund claims for its residents or itself for the time-periods prior to the effective date of the April 1, 2005 regulation.