HOSPITALS WOULD NO LONGER BE EXCEPTED FROM PAYING
EMPLOYMENT TAXES FOR MEDICAL RESIDENTS UNDER IRS PROPOSAL



In what some analysts characterize as an attempted end run
around court decisions that cut in the opposite direction,
the Internal Revenue Service issues a proposed rule under
which most medical residents and their employers would not
be excepted from paying employment taxes under the Federal
Insurance Contributions Act. The IRS also suspends a safe
harbor that institutions have used in applying the FICA
exception.

The Internal Revenue Code generally extends the FICA
exception to services performed in the employ of a school,
college, or university by an enrolled student. The IRS's
proposal would narrow the current regulatory definition of
"school, college, or university" to only those employers
whose primary function is education, thus excluding
hospitals. The proposal would also prohibit institutions
from applying the exception to employees who work more than
40 per week

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