(CN) - Medical residents should be considered employees rather than students and are therefore not entitled to Social Security tax exemption, the Supreme Court ruled on Tuesday.
The Mayo Foundation for Medical Education and Research sued the government to invalidate changes that the Treasury Department adopted in December 2004, which classified employees as those who work more than 40 hours a week.
Under the new rules, medical residents, who typically spend 50 to 80 hours a week working at hospitals, were required to pay Social Security taxes under the Federal Insurance Contributions Act.
Mayo also demanded a refund of the money it had withheld and paid on students' stipends to comply with the Treasury Department's new rules during the second quarter of 2005 - $2.1 billion in pending refund claims and about $700 million per year in taxes.
The Minnesota District Court had ruled for Mayo, but the 8th Circuit reversed on appeal in 2009.
The high court, which agreed
to take up the case in June, unanimously affirmed the ruling for the government. Oral arguments
for the case occured in November.
"We do not doubt that Mayo's residents are engaged in avaluable educational pursuit or that they are students of their craft," Chief Justice John Roberts wrote in the court's opinion. "The question whether they are 'students' ... however, is a different matter. Because it is one to which Congress has not directly spoken, and because the Treasury Department's rule is a reasonable construction of what Congress has said, the judgment of the court of appeals must be affirmed."
Justice Elena Kagan recused herself from the case since she worked as solicitor general.
The case is Mayo Foundation for Medical Education and Research v. United States
, no. 09-837.