The long-awaited final regulations released Tuesday by the U.S. Treasury Department and the Internal Revenue Service on student exemption from employment taxes gave no relief to teaching hospitals and academic medical centers.
The IRS in February released proposed regulations to help academic medical centers and teaching hospitals determine whether medical residents working there can be exempt from paying Social Security and Medicare payroll taxes deducted from paychecks through the Federal Insurance Contribution Act (FICA) collections. But the new 32-page guidance said exemptions from employment tax for student services only apply if the student is enrolled and regularly attending classes in a school, college or university. It also applied a number of qualifiers that exclude many, if not most, medical residents.
Rob Friz of PricewaterhouseCoopers said one potential advantage for hospitals is that the regulations only apply to services after April 1, 2005. "Most of those cases have protective claims dating back to the mid-1990s, and one of the questions is what the IRS is going to do with those claims," Friz said. "That's still up in the air and under consideration."