FICA Recovery - Frequently Asked Questions
Q: As an intern, resident or fellow, am I entitled to a FICA tax refund?
A: You may be eligible for a FICA tax refund. Eligibility for a refund of FICA taxes is dependent upon the IRS’s final analysis of certain specific, defined characteristics of the intern, residency or fellowship program you participated in sometime during the years 1995 through March 31, 2005. The statute of limitations bars any refund claim attributable to wages paid to you before 1995.
You must file a claim for a refund in order for the IRS to consider your eligibility for a refund but filing for a refund does not mean that you will receive a refund.
Q: What case law is the claim based upon?
A: The claim stems from the decision of the U.S. Court of Appeals for the Eighth Circuit in 1998 in State of Minnesota v. Apfel which held that stipends paid to University of Minnesota medical residents in 1995-96 were not subject to FICA tax as a result of the student FICA exception. Since the decision of the Eighth Circuit in 1998, four other U.S. Courts of Appeals have rendered decisions regarding medical residents' eligibility for the student FICA exception and all four other U.S. Courts of Appeals have held that medical residents are or could be eligible for the student FICA exception. Most recently, on March 25, 2009, the U.S. Court of Appeals for the Second Circuit, in Memorial Sloan-Kettering Cancer Center et al., held that medical residents at Memorial Sloan-Kettering Cancer Center and Albany Medical Center could qualify as "students" under the student FICA exception.
Q: Will FICA taxes be withheld from my paycheck going forward?
A: The IRS has not evaluated the claim for a FICA refund. Further, there is no guarantee that the IRS will allow a refund.
Also, in response to the Eighth Circuit's decision in Apfel, the IRS amended its regulations in 2004 (effective April 1, 2005) so that medical residents could not qualify for the student FICA exception - based on the application of the "full-time employee" limitation. On June 12, 2009, the U.S. Court of Appeals for the Eighth Circuit, in Mayo Foundation for Medical Education and Research v. United States, upheld the "full-time employee" limitation in the final amended regulations effective April 1, 2005 under the student FICA exception. The Eight Circuit held that stipends paid to residents at Mayo Foundation for Medical Education and Research and the University of Minnesota during the second quarter of 2005 did not qualify for the student FICA exception.
Accordingly, FICA taxes will continue to be withheld from any residency, internship and/or fellowship earnings. Further questions about FICA withholding on future earnings should be directed to the administrator of your residency, internship and/or fellowship program.
Q: If I choose to consent to allow Baylor College of Medicine ("BCM") to apply for a FICA tax refund on my behalf, am I guaranteed a refund?
A:Whether or not BCM actually obtains a refund depends upon whether the claim is approved by the IRS. Such approval is contingent upon a number of factors and it is possible that the claim may not be approved by the IRS.
Further, in order to avoid litigation, BCM may negotiate a settlement with the IRS for an amount that is less than the full amount of FICA that was paid to the IRS. For example BCM and the IRS may agree to reduce the full amount of FICA that was paid to the IRS by a specific percentage. If Baylor settles for a lesser amount, your share will be reduced by this percentage as well.
Q: If I want to apply for a FICA tax refund, must I do so with BCM?
A: With your consent, the applicable refund procedures allow BCM to file for a refund on your behalf for your share of the refundable FICA taxes. You are under no obligation to apply for a refund with BCM. However, if you do not give your consent, it may not be possible for you to seek a refund on your own behalf. You should consult your tax professional if you have further questions regarding this issue.
Q: Who should I contact with any questions?
A: If you have any questions, e-mail FICArecovery@bcm.edu. Include your name, telephone number, BCM ID number (if available), and years of residency or fellowship in your e-mail message. Your inquiry will be answered by e-mail as soon as possible. We will also update this web page with additional information as the claim filing process progresses.
Q: What should I do if I move before I receive a tax refund?
A: We expect that it may take some time before the IRS rules on the refund claim. As a result, if your mailing address changes before you receive a refund or further information from BCM, please provide new mailing address information to:
Baylor College of Medicine
Office of Graduate Medical Education
Mail Stop BCM220
One Baylor Plaza
Houston, TX 77030
Q: What is the cost to me for filing for a refund?
A: If you consent to have BCM file a refund claim on your behalf, there is no cost to you.
Q: If the IRS allows me a FICA tax refund, when can I expect to receive my share of any refund?
A: If the IRS allows the FICA tax refund, the IRS will send the aggregate refund to BCM. Although we do no know how long it will take for the IRS to rule on the refund claim, we will send you a check for your share of any refund in a timely manner.
Whether or not BCM actually obtains a refund depends upon whether the claim is approved by the IRS. Such approval is contingent upon a number of factors and it is possible that the claim may not be approved by the IRS.
Further, in order to avoid litigation, BCM may negotiate a settlement with the IRS for an amount that is less than the full amount of FICA tax that was paid to the IRS. For example BCM and the IRS may agree to reduce the full amount of FICA tax that was paid to the IRS by a specific percentage. If Baylor settles for a lesser amount, your share will be reduced by this percentage as well.
Q: If I do receive a FICA tax refund, do I need to pay taxes on it?
A: Should you receive a FICA tax refund, the withheld amount of the refund is not subject to federal income taxes. However, if the refund includes interest, the interest portion will be taxable for federal income tax purposes. You should contact your tax professional for more information on this subject and to discuss your specific tax situation.