As we announced
in our April 2010 newsletter,
the IRS has agreed to process FICA refund claims submitted by residency programs
and individual medical trainees for wages paid through March 31, 2005. The
catch is that only refund claims previously filed with the IRS will be
processed, since the statute of limitations has expired for eligible individuals who have not yet
submitted their pre-4/1/2005 FICA refund claims.
Why is the date of April 1, 2005
important? Early in 2005, the IRS issued
Internal Revenue Bulletin 2005-2, which outlined new regulations
regarding which people employed by colleges and universities qualify as "student
employees" exempt from FICA taxes.
As part of this ruling, the IRS set an applicability date of April 1, 2005.
employees classified as "student employees" are exempt from paying Social
Security and Medicare taxes on money earned while employed at the school. This
rule was most likely put in place to help students better afford their tuition
and living expenses while enrolled in either an undergraduate or graduate
program. (Social security and Medicare taxes are currently withheld at a rate of
7.65% of your gross salary.)
So what action
should you take in light of the post April 1, 2005 rules? For starters,
please keep in mind the following:
"student employer" regulations could very well be litigated down the road, and
frankly, the IRS
does not have such a good track record of winning similar cases in court.
of limitations to file the paperwork to receive a refund of FICA taxes paid
during your years of training is capped at just three years from the year when the
taxes are paid.
Based on these
two factors, I suggest that it might make sense for you to continue to file
your FICA refund claims for each year of your training that is still open.
In our February 2001 newsletter,
when we first wrote about this topic, we explained which tax forms you'll need
to complete and submit.
Even though the
IRS feels this issue has been put to rest once and for all, there is a good
chance that the FICA refund issue is not be a done deal. And on $50k of
salary, you pay $3,825 of Social Security and Medicare taxes annually that might
ultimately be refunded to you if the most recent regulations issued by
the IRS end up being defeated in court, provided you file the required paperwork
within the three year window.
As you learn
about new developments, please remember to post whatever you hear or read about the
FICA refund issue on our
Medical Resident FICA Forum.
OFFERS ONE-TIME SPECIAL FILING RELIEF PROGRAM FOR SMALL CHARITIES; OCT.
15 DUE DATE TO PRESERVE TAX-EXEMPT STATUS
Did you start a non-profit
organization at some point during your career, or are you currently on the Board
of one? If so, you need to make sure to file a Form 990 with the IRS each
year. Which version of the 990 the organization is required to file is a
function of the organization's total assets and/or annual revenues.
According to the IRS:
organizations at risk of losing their tax-exempt status because they failed to
file required returns for 2007, 2008 and 2009 can preserve their status by
filing returns by Oct. 15, 2010, under a one-time relief program.
“We are doing everything we can to help organizations comply with the law and
keep their valuable tax exemption,” IRS Commissioner Doug Shulman said. “So if
you do not have your filings up to date, now’s the time to take action and get
back on track.”
Two types of relief are available for small exempt organizations — a filing
extension for the smallest organizations required to file
Form 990-N, Electronic Notice(e-Postcard)
, and a voluntary compliance program (VCP) for small organizations eligible to
990-EZ, Short Form Return of Organization Exempt From Income Tax.
Small organizations required to file Form 990-N simply need to go to the IRS
website, supply the eight information items called for on the form, and
electronically file it by Oct. 15. That will bring them back into compliance.
Under the VCP, tax-exempt organizations eligible to file Form 990-EZ must file
their delinquent annual information returns by Oct. 15 and pay a compliance fee.
Details about the VCP are on the
IRS website, along with
frequently asked questions.
The relief announced today is not available to larger organizations required to
file the Form 990 or to private foundations that file the Form 990-PF.
The IRS will keep today’s list of at-risk organizations on
www.IRS.gov until Oct. 15,
2010. Organizations that have not filed the required information returns by that
date will have their tax-exempt status revoked, and the IRS will publish a list
of these revoked organizations in early 2011. Donors who contribute to at-risk
organizations are protected until the final revocation list is published.
Pension Protection Act of 2006 made two important changes affecting
tax-exempt organizations, effective the beginning of 2007. First, it mandated
that all tax-exempt organizations, other than churches and church-related
organizations, must file an annual return with the IRS. The Form 990-N was
created for small tax-exempt organizations that had not previously had a filing
requirement. Second, the law also required that any tax-exempt organization that
fails to file for three consecutive years automatically loses its federal
tax-exempt status. The IRS conducted an extensive outreach effort about this new
legal requirement but, even so, many organizations have not filed returns on
If an organization loses its exemption, it will have to reapply with the IRS to
regain its tax-exempt status. Any income received between the revocation date
and renewed exemption may be taxable.
If you participated in the NIH LRP during 2009, you have
until 9/30/10 to submit the paperwork to get back any additional taxes
owed to you by the NIH. One of the
MDTAXES CPAs can help you with this paperwork
For 2009 and 2010, the standard deduction for a single individual is $5,700 and
for a married couple is $11,400. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2009 and 2010, the personal exemption is $3,650.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $106,800
for 2009 and 2010.
The standard mileage rateis $.50 per business mile as of
January 1, 2010, down from $.55 per mile for 2009.
The maximum annual contribution into a 401(k) plan or a
403(b) plan is $16,500 in 2010. And if you'll be 50 or
older by December 31st, you can contribute an extra $5,500 into your 401(k) or
403(b) account that year.
The maximum annual contribution to your IRA is $5,000 for 2010. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2011 to make your 2010 IRA
In a shocking development, the IRS recently
announced that they will be honoring the FICA tax refunds submitted by
residency programs and individual doctors. The catch is that only FICA
taxes paid prior to 4/1/05 qualify.