Medical Resident FICA/Medicare Tax Refund Claims
April 7, 2010
The Internal Revenue Service (IRS) recently announced that it will refund the employer and employee portion ofFICA taxes paid for medical residents prior to April 1, 2005, so long as the employer previously filed a timely refund claim with the IRS. The University has already made the requisite filing on behalf of all of our medical schools and medical centers for tax periods dating back to January 1, 1995.
Background
FICA is a two-part tax consisting of Social Security (6.2%) and Medicare (1.45%). Please note that the University of California medical residents ─ and other non-career employees ─ pay only the 1.45% Medicare portion of the tax and do not pay the 6.2% Social Securityportion of the tax. Consequently, any refunds received by the University and its medical residents will be limited to the 1.45% Medicare portion of the tax.
Next Steps
The IRS will be contacting the University by mid June to provide further instructions regarding the refund process. We expect that, as part of this process, each resident eligible for a Medicare tax refund will have to sign a written statement (i) authorizing the University to seek the refund on his or her behalf, (ii) certifying that he/she has not already claimed a refund of (or credit for) the Medicare tax, and (iii) attesting that he/she will not separately make a claim to the IRS for refund of (or credit for) the Medicare tax in the future.
Once we receive definitive instructions from the IRS, we will contact residents from the pertinent time period to obtain these signed statements. Individual refunds to the medical residents will be processed shortly after the University receives the Medicare tax refunds from the IRS. The IRS has not yet provided a timetableas to when medical schools, medical centers, hospitals and universities will begin receiving refunds.
The University also must do a significant amount of work to quantify the Medicare taxes paid by the over 4,500 residents employed each year since 1995 by the Davis, Irvine, Los Angeles, San Francisco, and San Diego medical schools. This work must be completed before the IRS will begin paying the refund claims. To this end, the Office of the President and the Office of the General Counsel are already working with the campuses to document the amount of Medicare tax refund due each resident. Given this preparatory work, we will be able to move quicklyonce the IRS contacts us in June with the details of the settlement process.
We emphasize that this process relates only to the 1.45% Medicare taxes paid by residents prior to April 1, 2005. The IRS contends that regulations that became effective on April 1, 2005, subjected medical residents (and their employers) to full FICA taxes for work performed on/after that date. Therefore, the IRS is unwilling to refund medical resident any FICA taxes paid thereafter.
The Office of the President will provide more information about the refund process as soon asthe University receives further guidance from the IRS. In the meantime, please contact Wayne Hasby, phone (310) 825-9945, email , if you have any questions.