Payment Matters: CMS Instructs Teaching Hospitals on Reporting FICA Tax Refunds for Medical Residents


On March 10, 2010, the IRS determined that medical residents are exempt from FICA taxes based on the student exception, for tax periods ending before April 1, 2005. Although the refunds apply to tax periods ending before April 1, 2005, hospitals actually received these refunds during their FYs 2009, 2010 and 2011 cost years. Because hospital wage data from FYs 2009, 2010 and 2011 will be used to develop wage indexes for federal fiscal years (FFYs) 2013, 2014 and 2015, respectively, CMS recently issued instructions directing its contractors to inform teaching hospitals how they should report these refunds. CMS Pub. 100-20, Transmittal 1010, Change Request 7685, Dec. 30, 2011. CMS has instructed that the refund must be reported in a way that does not impact a hospital’s wage-related costs for wage index purposes. Hospitals have until January 30, 2012 to submit revisions to the reporting of their FY 2009 costs, which is currently being reviewed to develop the FFY 2013 wage index.

The FICA refund consists of two parts: (I) the refund to the hospital of the employer’s share and (II) the refund to the hospital of the resident employee’s share, which the hospital must return to the resident.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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