Almost 5000 postdoctoral scholars supported by National Institutes of Health fellowships took a 7.65% pay cut today, thanks to a new U.S. tax regulation. The change, which also requires their institutions to pay more to the government, exacerbates a long-running disagreement between NIH and the Internal Revenue Service (IRS) over the employment status of this slice of the U.S. postdoc population.
The IRS regulation, which went into effect 1 April, puts the squeeze on postdocs funded by the Ruth L. Kirschstein National Research Service Awards (NRSA) and some other fellowships by redefining who qualifies for a student exemption that shields the income earned from certain campus jobs. The rule requires employers, mostly universities, to begin withholding FICA (Social Security) and Medicare taxes from their paychecks.
Historically, NIH has argued that its NRSA postdocs are trainees rather than employees. Under that classification, universities do not have to offer postdocs employee group health insurance and other typical work benefits. An NIH spokesman estimated that there were 4700 postdocs on NIH training grants and similar fellowships in fiscal year 2004. The new rule does not affect the estimated 50,000 postdocs paid out of RO1s and other research grants to principal investigators, who have long been classified as employees, with FICA and Medicare taxes deducted from their pay.
In statements on its Web site, NIH makes it clear that it disagrees with the new rule. It maintains that Kirschstein-NRSA postdocs are not employees and that the new IRS regulation should not apply to them. The statement also states that "it is, therefore, inappropriate and unallowable for institutions to charge costs associated with employment (such as FICA, workman's compensation, or unemployment insurance) to the fellowship award." It also makes clear who is actually calling the shots. "NIH takes no position on the status of a particular taxpayer, nor does it have the authority to dispense tax advice," the NIH Web site explains. "The interpretation and implementation of the tax laws are the domain of the IRS."
Most universities appear to have gotten the message. "We immediately talked to our internal counsel and then our outside counsel, [who say] all postdocs, medical residents, and medical interns have to pay FICA," says Joel Oppenheim, senior associate dean for biomedical sciences at the New York University School of Medicine in New York City. Paying the employer's share of FICA and Medicare taxes for the medical school's 300-plus postdocs, he notes--about $3300 per individual--also affects the university's bottom line. "That's over a million bucks a year for us," says Oppenheim.