## Facts

- Medical schools and affiliated institutions operated residency programs providing specialty training after medical school.
- Residents spent most of their time (often 50–80 hours per week) providing patient care while also participating in lectures, conferences, readings, examinations, and evaluations.
- Residents received annual stipends and employment-like benefits, including health and malpractice insurance and paid vacation.
- The Federal Insurance Contributions Act (FICA) imposes Social Security taxes on “wages” paid for “employment,” broadly defined as services performed by an employee for an employer.
- FICA contains a “student exception” excluding from “employment” services performed for a school, college, or university by a student enrolled and regularly attending classes there.
- Treasury historically interpreted the exception to cover work that is “incident to and for the purpose of pursuing a course of study.”
- In 2004, Treasury issued a notice-and-comment regulation providing that a “full-time employee” (normally scheduled to work 40 hours or more per week) performs services that are not “incident to and for the purpose of pursuing a course of study,” even if the work has educational or training aspects; the regulation specifically treated full-time medical residents as not qualifying students.
- The institutions sought refunds of FICA taxes paid on resident stipends, asserting that residents qualified for the student exception.
- A federal district court invalidated the regulation and entered judgment for the institutions; the Eighth Circuit reversed, applying Chevron and upholding the regulation.

## Issues

1. Whether the statutory “student exception” in 26 U.S.C. § 3121(b)(10) unambiguously exempts medical residents from FICA taxes.
2. Whether Treasury’s 2004 regulation categorically excluding full-time employees (40+ hours per week) from the student exception is a valid interpretation entitled to Chevron deference.

## Decision

- The Supreme Court unanimously affirmed the Eighth Circuit.
- The Court held that § 3121(b)(10) does not unambiguously resolve whether full-time medical residents are “students” for purposes of the student exception.
- The Court applied Chevron to the Treasury regulation and rejected a tax-specific, less deferential standard of review.
- The Court held the 2004 “full-time employee rule” is a reasonable construction of § 3121(b)(10).
- As a result, medical residents working 40 or more hours per week do not qualify for the FICA student exception under the regulation.

## Legal Principles

- Treasury regulations issued with the force of law through notice-and-comment rulemaking are generally reviewed under Chevron in the tax context.
- When a statute leaves unresolved how a general term applies to a particular category (here, “student” as applied to full-time residents), an agency may fill the gap with a reasonable rule.
- An agency may adopt categorical, administrable lines (such as a 40-hour threshold) when the statute does not require individualized determinations.
- The existence of educational or training components in compensated work does not preclude an agency from treating full-time service as employment for purposes of a statutory tax exception.

## Conclusion

The Court upheld Treasury’s notice-and-comment regulation excluding full-time employees from FICA’s student exception, holding that the statute’s treatment of “students” is ambiguous as applied to full-time medical residents and that Treasury’s bright-line 40-hour rule is a reasonable interpretation entitled to Chevron deference.


Mayo Found. for Med. Educ. & Rsch. v. United States, 562 U.S. 44 (2011)