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September 2010


by Andrew D. Schwartz, CPA

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.

Remember, 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:

  • These new "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.

  • The statute 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.



Check out the article - Roth IRA Conversions: New Rules, New Opportunities -  that Andrew Schwartz CPA co-wrote with Larry Keller of Physician Financial Services for the August 2010 edition of Plastic Surgery Practice.  This article summarizes Roth IRAs and whether you might benefit by converting your existing IRAs and other eligible retirement accounts into a Roth IRA this year.



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:


Small nonprofit 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.

The IRS today posted the names and last-known addresses of these at-risk organizations, along with guidance about how to come back into compliance. The organizations on the list have return due dates between May 17 and Oct. 15, 2010, but the IRS has no record that they filed the required returns for any of the past three years.

“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 file Form 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 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.

The 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 time.

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.





Income Taxes

Saving and Investing




  • 3rd qtr estimates due 9/15/10
  • 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


2009 & 2010 TAX FACTS

  • 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 business expenses.
  • For 2009 and 2010, the personal exemption is $3,650. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2009 and 2010.
  • The standard mileage rate is $.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 contributions. 


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This Month's Topics

Why The FICA Refund Only Applies to Pre-4/1/2005 Wages

Roth IRA Conversions: New Rules, New Opportunities

IRS Offers One-Time Special Filing Relief Program for Small Charities; Oct. 15 Due Date to Preserve Tax-Exempt Status

The FICA Refund for Medical Residents 

2009 & 2010 Tax Facts

Tax and Financial Planning Calendar for September 2010


Browse our index of previous months' newsletter topics

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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.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

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