Medical Resident FICA Refund Claims Frequently Asked Questions

What are FICA taxes?
FICA stands for the Federal Insurance Contributions Act. FICA taxes consist of two separate taxes, social security and Medicare taxes that are paid on wages earned for services performed. Employers withhold and pay their employees’ share of the FICA taxes and also pay the employer share, each of which is tracked separately by the IRS.

What do I need to do to get my FICA refund?
In order to be included in Duke’s FICA refund, complete and submit the Medical Resident Consent Form by October 29, 2010. Duke cannot receive a refund of the FICA taxes that were withheld and paid on your behalf unless they have your written consent.

When will I receive my refund?
We anticipate it taking 6-18 months for the IRS to begin issuing refunds. Duke will then begin issuing refunds to all residents who both consented and were found to be eligible.

Why is FICA being refunded?
The IRS has made an administrative determination to accept the position that medical residents (“MR”) are excepted from FICA taxes for tax periods before April 1, 2005 when new IRS regulations went in to effect.

Why was FICA withheld from my check if the IRS says I should have been exempt as a student?
Due to controversy surrounding these regulations and resulting litigation, employers were instructed to continue withholding FICA from MR stipends until the regulations and case law was settled. Please note FICA will still be withheld for tax periods after 1st quarter 2005 since the new regulations are contrary to the conceded position of the IRS.

Are both Social Security and Medicare being refunded?
Yes, your refund amount will include the Social Security tax and the Medicare tax plus statutory interest.

How do I know if medical residency program qualifies?
The IRS has not provided guidance on the definition of a “medical resident”. Accordingly, it is not clear whether all residency programs will be eligible for these refunds. Refund claims for individuals in programs such as pharmacy, psychology and research may not be approved by the IRS.

Do I need to fill out any paperwork?
To consent to receive your share of the refund from the employer, you must fully complete the Medical Resident Consent Form and return it by regular mail, fax or email. The IRS has established a deadline for the employer to file its refund claim; therefore, your signed consent form must be received no later than the due date indicated on the consent form.

I did part of my training at another institution can I get a refund for those years as well?
Duke will only be able to obtain a refund for the FICA withheld on eligible compensation paid by Duke University. You may also be eligible for a refund from that institution, however, this is assuming the other institution filed protective claims and is now in the process obtaining resident consents and perfecting their claim(s) with the IRS. We would suggest contacting the other institution to inquire further.

Is there any reason that I might not want to participate in the refund?
Because Social Security benefits are based on your earnings over your working lifetime, a refund could reduce disability, survivors, or retirement benefits that you, or your family, are receiving or may seek to receive in the future. General information about the effect on your social security benefits can be obtained directly from the SSA at 1-800-772-1213.

Can I claim a refund on my own for the years that my institution did not file a protective claim?
If you filed a refund claim with the IRS for a year in which the employer did not file a protective claim, you should contact the IRS to pursue your refund claim. If you have not yet filed a refund claim with the IRS for a year in which your employer did not file a protective claim, you most likely will be precluded from receiving any refund of the FICA taxes withheld and paid on your behalf because the time period for filing an individual claim for refund with the IRS for the Eligible Refund period has expired.

How do I know how much my refund will be?
Depending on your individual circumstances, your refund amount could be significant because the Social Security tax rate was 6.20% of taxable wages, up to the annual limit, and the Medicare tax rate was 1.45% of taxable wages, with no limit for wages received after 1993. For example, a resident who received eligible compensation of $40,000 during 1995 and did not have any pre-tax deductions may be eligible for a refund of $3,060 in FICA taxes plus interest of approximately $2,660 for a total refund of more than $5,700 for calendar year 1995.

Do all of my earnings qualify for a refund of FICA taxes?
Eligible compensation is compensation received for services performed as a medical resident and excludes compensation for services that were provided outside the scope of your residency, such as temporary special medical activity (“TSMA) pay.

Is my refund taxable to me?
The FICA tax refund is not taxable. However, the interest on the refund may be taxable to you whether or not you receive a Form 1099-INT (or1042-S if applicable), Interest Income. A 1099-INT is required by the IRS for interest of $600 or more in a calendar year.

What if I received two consent packages from Duke University?
If you received two consent packages from Duke, it may have been determined that you are eligible for additional periods between 1991-1993. The IRS took additional time in reviewing whether Duke’s MR Claims related to these years could be pursued, therefore these years were not included in previous consent mailings. Although Duke has been given verbal authorization from the IRS for the years 1991, 1992, and 1993, all MR Claims are subject to final data review and approval by the IRS. Duke cannot guarantee that claims for these or any years will ultimately be approved and paid by the IRS. You must return both consent forms by the applicable deadlines in order to be included in the claims for all periods for which you are eligible. If you return only one form giving consent for only select periods, these will be the only periods in which Duke can pursue a refund on your behalf.

I was a resident during the calendar years 2003-2005. Why is Duke only filing a claim through 2002, when the IRS is permitting claims through April 1, 2005? What can I do to obtain a refund for the period Duke is not pursuing?
Duke University filed protective claims beginning with calendar year 1991 and ending with calendar year 2002. These are the only years for which Duke University is eligible to seek a FICA refund.

Other institutions have similarly filed protective claims, but many have protected different years for a variety of reasons. There were no requirements for institutions to file protective claims. In fact, some institutions did not file protective claims because they took the position that their Medical Residents did not meet the definition of a student for FICA purposes. Duke did not protect the 2003-2005 calendar years because during that time the IRS was actively fighting and winning court cases with institutions that did claim refunds for their Medical Residents’ FICA. These wins further supported the IRS’ position that Medical Residents’ did not qualify for the student exemption from FICA. Additionally, the IRS issued draft regulations articulating that position more fully and clearly than ever. Because the IRS has continued to actively litigate this issue, the recent announcement from the IRS to honor medical resident FICA refund claims for periods prior to April 1, 2005 was unexpected.

Medical residents that filed a claim individually for the years not covered by Duke’s protective claim should pursue those years directly with the IRS. However, if you have not filed a claim directly with the IRS, the statute to do so has likely expired. There may be reasons that your statute of limitation has not expired. Please consult with your tax advisor to confirm your personal situation and determine whether your statute of limitation has expired.

What if I received Form W-2 from two employers during an eligible year?
If you received two Forms W-2 during one calendar year, it is possible that you reached or exceeded the social security wage base. If this is the case, you may still be eligible for a refund of your FICA taxes paid from Duke University, however, you may or may not be required to take extra steps to ensure that you fulfilled your FICA tax requirement for that year. You may contact Ernst & Young LLP at the number provided for general answers to some of the questions you may have, or you may contact the either the IRS at 800-919-1703, or, your personal tax advisor for specific answers regarding your personal tax situation.

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