Update as of 2/27/2013
In the fall of 2010, Cleveland Clinic filed IRS refund claims for FICA taxes previously withheld on payments to medical residents. The claims were filed for the periods January 1997 – March 31, 2005 on behalf of five of our legal entities. The IRS reviewed each of the claims and finally approved all of our claims subject to certain reductions for suspended or disallowed amounts as explained below.
IRS Process For Review And Approval»
- IRS conducts a complete and detailed review of each claim filed.
- Once the IRS completes its review a Claim Allowance/Disallowance Report is issued indicating the total amount of the refund approved for payment as well as the amount of the claim that has been suspended or disallowed. This report also states that refund checks for the approved amounts should be received within 8-12 weeks from the date of this report. However, we have seen instances where receipt of the checks has taken longer than the 12 weeks.
- Claim Allowance/Disallowance Report – as part of their review, the IRS identifies refund amounts that they either disallow or suspend. Disallowed amounts are a result of either specific programs the IRS has disqualified as eligible for the refund or the individual resident already received a refund of the FICA taxes on their own. Suspended amounts are instances where an individual resident has other pending items with the IRS or has already started receiving social security benefits. The IRS has indicated that they will address the suspended items with the individuals once they have completed processing of all the other claims.
- The IRS then issues two notices per calendar quarter (CP210 Notices) confirming the refund amounts for the employer’s share of FICA taxes and the residents’ share of FICA taxes.
- As with the CP210 Notices, the IRS issues two refund checks per calendar quarter – one for the employer’s share of the refund and one for the total residents’ share.
- The refund distribution process to residents can begin after all quarterly checks have been received from the IRS. IRS procedures allow a reasonable period of time after the receipt of all the quarterly checks in which to begin the distribution process.
Current Status Of Cleveland Clinic Claims»
As mentioned above, Cleveland Clinic filed claims on behalf of five of its legal entities. The status of each of the claims is listed below.
- The Cleveland Clinic Foundation – the Claim Allowance/Disallowance Report has just recently been received and we are currently waiting on the CP210 Notices and the quarterly refund checks. Once all checks have been received we will begin the process of distributing the refunds.
- Fairview Hospital – the Claim Allowance/Disallowance Report has been received as well as all CP210 Notices and quarterly refund checks. We will begin to issue refunds to individual residents shortly. Update: Refund checks were mailed March 6, 2013.
- Cleveland Clinic Health System East Region (Huron and South Pointe Hospitals) – the Claim Allowance/Disallowance Report has been received as well as all CP210 Notices and quarterly refund checks. We will begin to issue refunds to individual residents shortly. Update: Refund checks were mailed March 6, 2013.
- Cleveland Clinic Florida Hospital – the Claim Allowance/Disallowance Report has been received as well as all CP210 Notices and quarterly refund checks. We will begin to issue refunds to individual residents shortly. Update: Refund checks were mailed March 6, 2013.
- Cleveland Clinic Florida – the Claim Allowance/Disallowance Report has been received as well as the CP210 Notices and the quarterly refund checks for all quarters with the exception of the quarter ending March 31, 2005. Update: Refunds for all quarters, except the quarter ending March 31, 2005, were mailed April 29, 2013. Refunds for the quarter ending March 31, 2005 will be distributed once the outstanding checks are received.
We will continue to update this site as information and timelines become available. In the interim, if you have any questions please email firstname.lastname@example.org.
FICA Refund for Medical Residents and Fellows – January 1997 through March 31, 2005
On March 2, 2010, the Internal Revenue Services (“IRS”) announced that it had made an administrative decision to accept the position that medical residents are exempt from FICA taxes under the “student FICA exception,” applicable for tax periods prior to April 1, 2005 when new IRS regulations took effect (IRS News Release IR-2010-25). Cleveland Clinic recently perfected the FICA refund claims we had protected for the periods of January 1997 through March 31, 2005.
Consent forms were mailed to all residents and fellows starting at the end of July. In order to have been included in the refund claim, residents were required to consent to have Cleveland Clinic pursue the FICA tax refund on their behalf. The time period for consenting to be included in the claim has now ended. If you were a resident and believe you missed your opportunity to participate in the refund claim, please see the FAQ’s link below for further information.
The IRS has still not indicated how much time it will need to process the FICA tax refund claims. We continue to monitor the status of the claims on a regular basis and will provide updates as we hear them. Once the refund is received, Cleveland Clinic will begin refunding the residents' shares, including applicable interest.
For additional information on the FICA tax refund claim process or any questions you may have, please refer to the FAQ’s and other links below. Cleveland Clinic will periodically update this website as more detailed information relating to the refund process becomes available.
FICA paid by Medical Residents and Fellows after March 31, 2005
On January 11, 2011, the U.S. Supreme Court held that medical residents are employees for purposes of the FICA tax. The 8-0 decision upheld treasury regulations issued by the Treasury Department that wages earned by medical residents working 40 hours or more per week are subject to FICA taxes. This decision applies only to quarters beginning after March 31, 2005; it does not affect a former resident's potential right to a refund for quarters prior to April 1, 2005 as discussed above.
Many inquiries have been received from current and former house staff on how one can receive a refund of FICA tax previously paid while a resident or clinical fellow at Cleveland Clinic. This interest stems from a court case decided in favor of the University of Minnesota in 1998 that ruled its house staff were “students” and, therefore, were exempt from the payment of FICA taxes.
On March 2, 2010, after nearly 15 years of litigation, the Internal Revenue Service (“IRS”) announced that it would concede that medical residents qualify for the student FICA exception for taxable quarters ending before April 1, 2005. This memorandum provides some general information, as well as information regarding Cleveland Clinic’s activities with respect to this matter.
FICA taxes are imposed on wages received by individuals with respect to employment. Section 3121(b) of the Internal Revenue Code (“IRC”) defines “employment” as any “service” performed by an “employee” for the person employing him or her, with enumerated exceptions.
Section 3121(b)(10) of the IRC provides an exception from FICA tax on account of payments made for services to a “student who is enrolled and regularly attending classes” at the school, college or university where he or she is employed (the “student FICA exception”).
In 1998, the U.S. Court of Appeals for the Eighth Circuit, in State of Minnesota v. Apfel, 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, other U.S. Courts of Appeals have rendered decisions regarding medical residents’ eligibility for the student FICA exception and all have held that medical residents are or could be eligible for the student FICA exception.
In light of the ongoing developments, on March 2, 2010, the IRS made an administrative determination to accept the position that medical residents were not subject to FICA taxes based on the student exception for tax periods ending before April 1, 2005, when new IRS regulations went into effect.
The IRS indicated on March 2, 2010 that it will contact organizations that filed FICA refund claims through March 31, 2005 within 90 days. Once this occurs, the various claims filed by Cleveland Clinic will be further analyzed and an update will be posted.
Cleveland Clinic’s Response
Based on the decisions of the above-referenced appellate courts, Cleveland Clinic filed, by the appropriate IRS deadlines, “protective” refund claims for the FICA taxes paid with respect to medical residents and clinical fellow of Cleveland Clinic for the taxable periods from January 1, 1997 through March 31, 2005.
The applicable refund procedures allow Cleveland Clinic, with your consent, to file for a refund on your behalf for your share of the refundable FICA taxes. Such refund claims included language covering both the employer and employee share of FICA tax.
Cleveland Clinic is in the process of “perfecting” these refund claims. In this regard, Cleveland Clinic identified qualifying house staff, their January 1, 1997 through March 31, 2005 earnings, and the amount of FICA tax paid on such earnings.
To properly complete the FICA tax refund claims under the applicable refund procedures, Cleveland Clinic was required to make a good faith effort to contact the individual residents and fellows included in its claim and request their consent to allow Cleveland Clinic to coordinate and also seek to obtain the house staff member’s portion of the FICA contributions in question on his/her behalf.
Cleveland Clinic obtained up-to-date contact information for all house staff potentially eligible for FICA tax refunds (i.e. who were residents between January 1, 1997 through March 31, 2005) in order to obtain such individual’s consent to join Cleveland Clinic’s refund claim.
You are under no obligation to apply for a refund with Cleveland Clinic. However, if you do not give your consent, it may not be possible for you to seek a refund on your own behalf because of the expiration of the statute of limitations regarding the submission of refund claims (e.g. FICA tax refund claims for the taxable period ended March 31, 2005 must have been timely filed by April 15, 2009). You should consult your tax professional if you have further questions regarding this issue.
For this reason, it is critical that Cleveland Clinic’s house staff program graduates inform Cleveland Clinic of their current address and every time they move. Please take the time to confirm now that Cleveland Clinic has your correct current address.
You may send your current address information via email to FICARefund@ccf.org.
If a refund is granted, it is anticipated that Cleveland Clinic will issue you a Form W-2c, Corrected Wage and Tax Statement, for each year in which you are entitled to a refund. None of the amounts reflected on the Form W-2c will result in additional taxes to you. However, the Form W-2c will reflect a reduction in your earnings for Social Security benefits purposes.
Whether Social Security benefits that you are receiving currently or in the future are impacted by a reduction of wage credits as a result of the refund depends on your particular facts and circumstances. These questions can be addressed by the Social Security Administration (“SSA”) at your local SSA office.
You may also be entitled to interest on the refund amount. If you are entitled to interest on the refund amount, you will receive a Form 1099 INT reflecting the amount of interest you will receive on the refund amount. These interest amounts may be includible in gross income in the year in which they are received. Again, you should consult your tax professional if you have further questions regarding this issue.
Some house officers have asked whether it would be effective to file their own FICA refund claims with the IRS. While house staff members are free to handle their personal tax filings as they see fit, 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 adviser in this regard. For these reasons, we recommend that house staff consent to joining Cleveland Clinic’s existing claims.
If you have any questions about the foregoing information, you may email FICARefund@ccf.org. Include your name, telephone number, Cleveland Clinic ID number (if available), and years of residency or fellowship in your email message. Your inquiry will be answered by email as soon as possible.