Another court has weighed in on whether universities have to deduct FICA from the pay of physicians in residency programs. In 2009, the U.S. Court of Appeals for the Second Circuit held that two district courts had erred in ruling that post-graduate medical residents are ineligible for the student FICA exception as a matter of law. The cases were remanded for the courts to conduct a particularized review based on the facts of the cases to determine whether the student exception would apply.

The Federal Insurance Contributions Act (FICA) imposes payroll taxes on wages — “all remuneration for employment” — with certain exceptions. The so-called “student exception” excludes from the definition of “employment” any service performed by a student “in the employ of a school, college, or university[,] . . . who is enrolled and regularly attending classes at such school, college, or university. 26 U.S.C. § 3121(b)(10). The Second Circuit held that whether a medical resident is a “student” and whether the resident is employed by a “school, college, or university” are separate factual inquiries that depend on the nature of the residency program and the status of the employer.

In issuing this ruling, the Second Circuit joins in similar holdings by the 6th, 7th, 8th, and 11th Circuits. Accordingly, teaching hospitals and their medical residents should be more confident that there is a possibility that the student FICA exemption could apply, if they meet the statutory and regulatory criteria.