| 1. |
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.
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Why are FICA refunds being paid to medical residents and their employers?
Under the theory that medical residents should be excepted from FICA tax as students under Internal Revenue Code section 3121(b)(10), some hospitals and medical schools began filing FICA refund claims in the 1990's. This exception is referred to as the student exception and may apply to a student at a school, college or university who is also an employee of that school, college or university. The IRS initially denied the claims under the belief that medical residents were employees being compensated for services rendered. North Shore-LIJ Health Systems and its member Hospitals ("North Shore-LIJ") were among the first to seek refunds; North Shore-LIJ began filing refund claims in some cases as early as calendar year 1995. For those years that an employer filed a refund claim, the claim includes two parts: the first part is the employer's FICA tax, and the second part is the employee's FICA tax (for consenting medical residents only). In some cases, individual medical residents filed their own claim for the employee share of the FICA tax. The IRS held the claims in suspense because there was a dispute as to whether the student FICA exception applied. After many years of litigation that included both government and taxpayer victories, the IRS finally conceded. It made an administrative determination to accept the position that medical residents are excepted from FICA taxes for tax periods ending before April 1, 2005, when new IRS regulations went into effect.
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Who is eligible to receive a refund?
Medical residents and fellows ("Medical Residents") who participated in residency training at North Shore-LIJ and its member hospitals prior to April 1, 2005 may qualify for a refund. Additionally, institutions that employed Medical Residents are eligible to receive refunds if they are covered by timely filed FICA refund claims. Institutions can be covered under FICA refund claims they filed themselves. Individual medical residents can be covered under FICA refund claims they filed themselves or under claims filed by the institutions that employed them. These refund claims are subject to the same requirements that apply to all FICA refund claims including verification by the IRS of the amount of the claim and payment of interest.
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What is the significance of April 1, 2005?
On April 1, 2005, new regulations regarding the student FICA exception became effective. One part of these regulations states that an employee who works 40 hours or more (full-time employee) for a school, college or university is not eligible for the student exception. This part of the regulations excludes medical residents from the student exception. If you participated in a medical residency program at North Shore-LIJ on or after April 1, 2005, then you will receive correspondence from North Shore-LIJ in the future regarding the ability to participate in refund claims for those post-Regulation periods. The United States Supreme Court has agreed to hear a case involving the validity of the IRS's regulations regarding the student FICA exception and medical residents. North Shore-LIJ will continue to monitor the legal developments for the post-Regulation periods.
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How would this initiative impact my benefits from the Social Security Administration?
Whether an employee's social security benefits (either current or future) will be reduced on account of removing wages from his or her social security earnings record will depend on the employee's personal circumstances. A refund could have a detrimental effect upon disability, survivors, or retirement benefits that you, or your family, are receiving or may seek to receive in the future. If you want information about the effect on your social security benefits, you should contact SSA directly toll-free at: 800-772-1213. If you call or visit a Social Security office, please print out these FAQs and bring them with you. It may help SSA answer your questions. You might want to review your social security record before and after your refund has been processed. You can use your current Social Security Statement or you can request a copy of your Social Security Statement at the SSA website.
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If I do not consent, will my FICA wages be affected?
Medical Residents who consent and obtain a refund will receive a revised W-2, known as a W-2c, reporting reduced FICA wages. Recent IRS materials have not addressed whether residents who do not consent (and thus receive no refund) are to be similarly treated but imply that such social security earnings may not be impacted for non-consenting residents. Future IRS and/or SSA materials may clarify this issue.
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Will I receive interest on my refund?
Yes. The IRS will pay statutory interest when refunding these taxes and you will receive your proportional share. Interest in excess of $600 will generally be reported on Form 1099-INT as required by the IRS.
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Did North Shore-LIJ and its member hospitals submit refund claims to the IRS?
Yes, North Shore-LIJ filed claims in 2010 for FICA tax refunds for qualifying North Shore-LIJ medical residents, including fellows in training programs ("Medical Residents").
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| 9. |
How long is this refund claims process expected to take?
Although the IRS has not provided a specific timeframe for the claims review, it is estimated the process will take a minimum of 6 to 18 months for the IRS to process all claims and issue any refunds. Please Note: Some of North Shore-LIJ's member hospitals (including Staten Island University Hospital and Lenox Hill Hospital) had different filing dates; therefore, the timing may vary based on the file date and the IRS' response time.
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When will I be notified regarding my claims' status?
If you requested North Shore-LIJ to file a claim on your behalf (meaning you participated in medical residency training at North Shore-LIJ and its member hospitals prior to April 1, 2005 and returned your consent form), you will be contacted with an update as soon as more information becomes available from the IRS.
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What must I do in order to be included in North Shore-LIJ's FICA refund claim for medical residency and fellowship training that I received prior to April 1, 2005?
If you are affected, you will receive a letter with detailed instructions about how to participate in North Shore-LIJ's refund claim. If you wish to participate, please read the materials thoroughly, complete and sign the Consent Form, and return it as indicated on the instructions. Reply options, in order of preference, are (1) email, (2) fax, and (3) hardcopy mail.
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If I consent, when will I get my money?
Medical Residents who consent to participate in the refund claim should not expect to receive their refund check from North Shore-LIJ for several months (or even more than a year) after consenting. This is because there are multiple procedural steps that must be undertaken by North Shore-LIJ and the government after the consents are received and before North Shore-LIJ is able to remit the refunds to the residents (i.e. filing final refund claims, review and processing by the government, and allocation of interest to individual residents).
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What is the process that North Shore-LIJ must follow in order for me to obtain my refund?
The IRS has instituted a process for all institutions that have pending refund claims. Each claim must proceed through various steps. It will take several months to complete this process and will be largely dependent upon how long the IRS takes to review the North Shore-LIJ refund claims for all such years. Once the IRS approves the Medical Resident claim(s), it is expected to take several weeks or months for the IRS to issue such refund checks to North Shore-LIJ. Post claim administration work (i.e. allocating interest to the medical residents, issuing individual checks, and preparing Form W-2c) must then commence. Again, the entire process will take several months but we are optimistic that the process can be completed within the next 12 months.
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Whom should I contact if I have questions regarding this initiative or to update my contact information?
Each resident's personal tax situation is different. We encourage you to discuss questions about your particular situation with your tax preparer or other personal financial advisor. For general updates, please visit our website regularly. For general procedural questions on this initiative that are not answered through these frequently asked questions, you may contact Gilardi & Co, LLC at (866) 286-2606 from 8:00 a.m. to 5:00 p.m. (PST).
The refund process may take more than a year to resolve. You will be personally responsible for keeping your address information up to date. Failure to do so could cause any refund checks to you to be undeliverable, and ultimately escheated to the state of your last known residence.
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I am/was a Lenox Hill Hospital Medical Resident prior to April 1, 2005. What are the instructions?
The same procedure described above pertains to Lenox Hill Hospital, which was recently brought into North Shore-LIJ as a member hospital. The only difference is a separate letter and consent form was mailed the week of August 30th, therefore, the date to return the signed consent form is October 11, 2010 (instead of September 15, 2010). Please follow the instructions outlined in the letter and consent form.
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