Labor & Employment Law

SCOTUS: Medical residents not exempt from Social Security tax

Mayo Foundation for Medical Education and Research v. United States (US Supreme Ct 01/11/2011)

"Residents" participating in accredited graduate medical education programs receive substantial payments (called stipends) from the Mayo Foundation for medical and patient care services provided by the residents at affiliated and unaffiliated hospitals and clinics. The Internal Revenue Code exempts certain students from Social Security taxes. Recently promulgated Treasury Regulations categorically exclude all medical residents and other fulltime employees from the definition of "student" in 26 U.S.C. § 3121(b)(10), which exempts from Social Security taxes "service performed in the employ of a school, college, or university" by a "student who is enrolled and regularly attending classes at such school, college, or university."

The US Supreme Court unanimously held that the Treasury Department's rule is a reasonable interpretation of § 3121(b)(10).

The Court applied the familiar two-part test of Chevron USA v. Natural Resources Defense Council, 467 US 837 (1984). The Court declined to use the more complex analysis of National Muffler Dealers Assoc v. United States, 440 US 472 (1979), indicating that Chevron analysis applies "with full force in the tax context." Applying Chevron analysis, the Court said that the Treasury rule "easily satisfies the second step of Chevron, which asks whether the Department's rule is a 'reasonable interpretation' of the enacted text."

Full post as published by Ross' Employment Law Blog on January 11, 2011 (boomark / email).