The Internal Revenue Service has made an administrative determination that medical residents are excepted from FICA taxes based on the "student exception" for tax periods ending before April 1, 2005, when new IRS regulations went into effect.
The IRS plans to begin contacting hospitals, universities and medical residents who filed FICA (Social Security and Medicare tax) refund claims for these periods within 90 days, in order to provide additional information.
The agency says employers and individuals with pending claims do not need to take any action at this time.
The American Hospital Association claims that the rule costs teaching hospitals and medical schools an estimated $700 million annually.
Lawrence Hughes, the AHA's assistant general counsel, said the IRS decision does not negate the need for the U.S. Supreme Court to review the 2005 rule, as the association has requested in a pending case.