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Below is an article from Is this for real? If the 1040x is only good for 3 years, can you still do 97? how about 98,99? What are the current laws, and what about fellowship after residency? This is still technically training and treated like residency as far as loans are concerned. THanks for thought.


Sounds too good to be true? Well, ask around, and you'll probably find that many of your
colleagues have already received refunds from the federal government of social security and
Medicare taxes that was withheld from their pay while they were residents.

Why is the Federal Government Being So Generous?

They have no choice. First, there was some ambiguity in the tax laws as they apply to
medical residents being classified as employees or students. Then the IRS lost a court case
and a subsequent appeal when they were challenged on their interpretation of the laws.

The rule in question deals with people who are employed by colleges, universities, and
organizations (such as teaching hospitals) affiliated with colleges and universities. According
to IRS code section 3121(b)(10), employees of universities and their affiliated entities
should be classified as either "student employees" or "career employees".

Employees classified as student employees are exempt from paying social security and
Medicare taxes on money earned while employed at the school. This rule was most likely
put in place to help students better afford their tuition and living expenses while enrolled in
either an undergraduate or graduate program. (Social security and Medicare taxes are
currently withheld at a rate of 7.65% of your gross salary.)

In the court case, a large teaching hospital affiliated with a midwestern university was not
withholding social security taxes from their medical residents claiming, instead, that the
residents should be treated as student employees. The IRS assessed the university more
than $8 million in unpaid Social Security taxes. The university took the IRS to court and
won both the court case and the subsequent appeal, opening the door for medical residents
to be classified as student employees instead of career employees, and thus, allowing the
residents to receive refunds of social security and Medicare taxes withheld from their pay.

How Can You Get Back Social Security Taxes Withheld During Your Residency?

There are two ways that you can get back these taxes. The easiest way is to find out if your
residency program will be submitting a "class action" claim on behalf of you and the other
residents. If so, consider signing onto the class action if you'd like to get a refund of the
social security taxes withheld. (See What's the Downside before deciding.)

If your program will not be filing a class action on behalf of their residents, then you're on
your own. As long as your employer was a university or a hospital affiliated with a
university, consider preparing the paperwork yourself. Completing and filing the necessary
paperwork, as addressed later in this article, is not too difficult at all.

What's the Downside?

As in all cases, there's a downside which needs to be addressed prior to making your final
decision. A few potential pitfalls are as follows:

First, the retirement benefit you ultimately receive from social security might be
reduced if you receive a refund of social security taxes paid in during your residency.
Remember, to collect social security, you need to pay into the system for 10 years.
Plus, your benefit is based on your 35 years of highest earnings.

Also, if you moonlighted, and your combined salary and moonlighting income
exceeded the social security maximum for that year, you might owe more in
self-employment taxes than you would get back in social security taxes. The social
security max was $65,400 in 1997, $68,400 in 1998 and $72,600 in 1999.

What's the Procedure?

Below is an e-mail that has been circulated to many of our clients from other young
physicians. Please note that we have not written or edited this e-mail, and aren't advising
you to try to get back social security taxes withheld during your residency. (Make sure to
consult with your tax advisor before sending in the paperwork to get your social security
and medicare taxes refunded.) We do feel, however, that it's important that you're aware
that this opportunity exists. The e-mail reads as follows:

"Here is some interesting info: A friend from med school told me that he filed some
forms with the IRS and got a complete refund of all the FICA taxes he paid as a
resident! He got $3,000 per year of residency. He went to the IRS' website
( and downloaded a 1040X (amended income tax) form. He then
attached the following cover letter which a family friend drafted. It took him 8 weeks
to get the refund, but how much moonlighting would you need to do to get $9,000?
For those who don't know, the basis is a court decision stating that residents are
officially "students" i.e cannot bill, avoid minimum wage, hours etc.. and, therefore,
should be exempt from F.I.C.A. taxes.

Below is the statement to attach to the 1040X (amended tax return).

(Your Name)

(Insert fiscal Year) Federal Income Tax Return Form 1040

Social Security Number: (yours + spouse's if joint file)

(Your address)

Line 11 Being Changed:

I am a student and Medical Resident at the University of (wherever). During (year) I
received payment from the University for work performed as a student and medical
resident. For the entire year (year) I was considered a student of the university. In
1998, the 8th Circuit Court of Appeals held in The State of Minnesota vs. Apfel,
151F.3d742, that medical residents are students and, therefore, exempt from paying
FICA taxes. This case upheld a lower court opinion. In accordance with the opinion
of the Court of Appeals, I am hereby amending my (year) Federal Income tax return
to reflect my overpayment of FICA taxes in the amount of (insert line 11B form
1040X) and request a refund of this amount. I am aware of the fact that the Internal
Revenue Service does not plan to challenge or seek further review of the opinion in
the above-referenced case. I am also aware of the fact that a coalition of major
universities throughout the country have discussed this issue and the
above-referenced opinion with officials of the Internal Revenue Service including the
Chief Counsel and it is my understanding that refunds of previously withheld FICA
taxes have been approved.

I respectfully request that if my refund is not approved or if there is a lengthy delay in
the process of approving this refund request, that this Amended Return and request
for refund of FICA taxes be sent to the Appellate Division.

Thank you for your time and consideration."

How Many Years Can This Refund be Claimed?

Since the IRS generally requires that you submit an amended tax return (Form 1040X)
within 3 years of the original due date of the tax return, including extensions, most people
only have until 4/15/01 to amend their 1997 income tax returns. For that reason, you only
have a few months left to get back the social security and Medicare taxes withheld during

You might also be eligible to receive refunds for 1998 and 1999 if you were a medical
resident during those years. Be aware, however, that the rules have been changed as they
specifically apply to medical residents. Under the new rules (issued by the IRS after they
lost their law suit and appeal), medical residents no longer qualify as "student employees".
Even with the new ruling in place, however, we've heard that many of your colleagues are
still receiving refunds of their social security taxes withheld during 1998 and 1999 by filing
1040X's for those years.

Good luck getting back these taxes, and please keep us posted whether or not your claim
for refund was successful.

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