Residency pay- stipend or salary?

Crypt Abscess said:

Okay, I was looking at the finer details and verbage of my residency contract and stumbled across this: "the resident physician shall be entitled to an annual educational STIPEND of $39,884 prorated with payments in equal installments on a biweekly basis"

Does anyone know what implications this verbage may have? As far as I know, I don't have to pay taxes on an educational "stipend" as this is similar to a educational scholarship. What sort of verbage does everyone elses contract have? I recall a case a couple of years ago (I believe at Mayo) where the residents sued the govt. claiming that there salary or stipend was tax exempt, and won. What do you all think? Crypt

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The IRS has determined that it's salary, and taxable, not a "stipend". The residents are caught in the middle - the hospitals don't consider you to be an "employee" with all the protections that an employee has, but the IRS does, and they tax you accordingly.

In short, residents are screwed.

...but I also heard that if it were officially a "salary," then residency positions could somehow no longer be funded by Medicare.

This is also a way they (residency programs) can get you to attend their mandatory "pre July" orientation programs without you being paid extra.

In some cases, due to the fact that residents have student status, residents do not have to pay FICA (Social Security) taxes on their paycheck (but you do have to pay all other taxes).

Not to be cynical but. . . it is a salary. You are a salaried employee to do a job and the IRS treats your income as such. Hosptials and Universities call it a "stipend" as a way to keep salaries in check. You know the line, "you are a student in training. You should be grateful for the 'stipend' that you get to help you pay for your training."

I don't know about the FICA, but I find the information highly doubtful.

The IRS treats tuition scholarships as tax free. Anything beyond tuition, i.e. for room, board and other expenses are taxable as income. Your "stipend" is not for tuition.

JBJ said:

The IRS treats tuition scholarships as tax free. Anything beyond tuition, i.e. for room, board and other expenses are taxable as income. Your "stipend" is not for tuition.

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The IRS treats competitive tuition scholarships as tax exempt. If you received a scholarship from a former employer, from your hometown, etc. as a means to encourage you to come back and practice there, then it's not deemed a competitive scholarship. As such, you have to pay taxes on it.

I know because I've been there.

JBJ said:

I don't know about the FICA, but I find the information highly doubtful.

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Sorry JBJ, the information is absolutely true:

http://www.ama-assn.org/ama/pub/category/7068.html

United States v. Mayo Foundation for Medical Education and Research, 2003 U.S. Dist. LEXIS 13603 (D. Minn. 2003)

"At issue is whether Mayo and the residents properly fall within the "student exception" set forth in the IRS Code. The court held that the student exception to FICA tax on wages did apply to stipends paid by the Mayo Foundation to residents participating in its medical residency programs....Therefore, medical residents did not fall within the purview of the FICA tax program."

At least in Minnesota (at Mayo and UMN), residents do not have to pay FICA taxes. However, another AMA webpage (see item 5) indicates that the IRS is challenging this precedent and wants to establish a rule that would prevent any more court-ordered exemptions like the one in Minnesota. The hearing is on June 16 so this is a pretty timely issue.

Fermi said:

Sorry JBJ, the information is absolutely true:

http://www.ama-assn.org/ama/pub/category/7068.html

United States v. Mayo Foundation for Medical Education and Research, 2003 U.S. Dist. LEXIS 13603 (D. Minn. 2003)

"At issue is whether Mayo and the residents properly fall within the "student exception" set forth in the IRS Code. The court held that the student exception to FICA tax on wages did apply to stipends paid by the Mayo Foundation to residents participating in its medical residency programs....Therefore, medical residents did not fall within the purview of the FICA tax program."

At least in Minnesota (at Mayo and UMN), residents do not have to pay FICA taxes. However, another AMA webpage (see item 5) indicates that the IRS is challenging this precedent and wants to establish a rule that would prevent any more court-ordered exemptions like the one in Minnesota. The hearing is on June 16 so this is a pretty timely issue.

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This is interesting. I personally would like to see the salary called a salary. Residents do a job, perform a useful function, and should get paid for it. As such, the salary should be taxed, just like everyone else's taxes. Residents should also receive the same benefits as other employees, such as faculty and nurses. In some places they do, in others, they don't.

This issue was settled a few years back (2000? or 2001? I'm too lazy to look it up) by the National Labor Relations Board (NLRB). Residents are in fact employees of the hospital and not students. This provides all the legal protections of workers in the US. Given that residents also have no supervisory responsibilities, they also have the express right to organize as well. At least in private institutions; those at public institutions are under the local and state guidelines for their location. Some public institutions do officially classify their house staff as students, giving them some of the tax benefits thereof. I think the IRS would step in and fix this "mistake," but the political implications of going after residents with $100K - $200K in student loan debt and making virtually nothing makes the action not worth the trouble.

One other issue this may cause is that your hospital may based on this wording exclude you from 401k/403b eligibility because you're not being paid a "salary". Most residency programs don't match but this may cause you to be ineligible for a tax-deferred retirement program entirely.