By Katie Kieffer
Did you know that medical students at the prestigious Mayo Clinic and the University of Minnesota are required to pay taxes on their residency work? In 2005, the Treasury Department issued a rule that eliminated the exemption from paying Social Security taxes for medical students who work over 40 hours a week.
The Mayo Foundation of Rochester and the University of Minnesota are currently challenging this rule in the Supreme Court. The High Court’s decision on this case will have widespread implications that could impact your health. I will break down the basic arguments on both sides of Mayo Foundation v. U.S. I will also recap my interview with a pre-med student so that you can determine your stance on this case and see the relevance to your day-to-day life.
Mayo Foundation for Medical Education and Research
- Theodore Olson, former solicitor general and current legal counsel for the Mayo argues that the IRS needs a non-arbitrary definition of “student.” He asks, “If you’re doing it [medical residency work] for 39 hours, you are [a student] but if you do it for 41 hours, you aren’t?”
- Olson also implied that: “if a person involved in a work-study program is entitled to an exemption according to the IRS definition of the term student, the medical resident should be even more so,” reports United Press International. Olson stated that medical students, ‘”cannot achieve what they need to achieve for board certification and hospital privileges except by having clinical experience,” that is, by performing the required hands-on work in the same field as their studies.’
- The Mayo points out that the 8th District Court of Appeals is alone in siding with the IRS in recognizing the legality of its 2005 rule. Four other federal appeals courts came down on the side of the hospitals on this issue. This means that hospitals in the 8th District are at a disadvantage both operationally and in attracting medical students to their residency programs. The 8th District includes Minnesota, South Dakota, North Dakota, Missouri, Nebraska, Arkansas and Iowa.
- The Social Security Tax amounts to a 12.4 percent tax on the wages of medical students. The hospital and the resident split the tax. So, for example, a medical student at the Mayo grossing $50,000 ends up paying $3,100 to the IRS and the Mayo also has to cough up $3,100 to the IRS on behalf of this student.
- Assistant solicitor general, Matthew Roberts, argued on behalf of the IRS that, “If you’re working full time, you’re an employee and not a student.”
- The Treasury Department can earn up to $700 million per year by taxing non-exempt medical students. The federal government sees an opportunity to line its Social Security coffers with funds from young students who are unlikely to ever experience substantial benefits from Social Security themselves.
A medical student’s perspective
I interviewed a senior pre-med student at the University of St. Thomas in St. Paul who is currently applying to medical schools across the country. He gave me his view on this issue:
- “The IRS’ distinction between a student and an employee is inconsistent. By the IRS’ definition, a medical student who works 10 hours a week should get taxed just as much as a student who works 40 hours a week in a residency program. The IRS is making a distinction based on the amount of time spent in the residency program, not based on what the student is doing.”
- “There are different types of work. There is such a thing as an apprenticeship, which is what a medical student partakes in. It is an integral part of their formal education and without it they will not have any tangible experience.”
- “If medical students are taxed on anything above 40 hours, they will just work 39 hours even if they could use the extra experiential learning.”
According to the American Medical Association, the average educational debt of indebted medical students in 2009 was $156,456 and 79 percent of all graduates had educational debt over $100,000. Medical students invest a significant amount of money in educating themselves on how to take care of you and me. They sacrifice four-plus years of their youth after college to master medicine.
It makes sense to encourage medical students to participate in as much residency work as they can. I would feel uneasy entrusting my health to a doctor fresh out of medical school without knowing that they had received ample hands-on experience. Wouldn’t you?