[The Mayo Clinic offers residency programs to doctors who have graduated from medical school and seek additional instruction in a chosen specialty. Those programs train doctors primarily through hands-on experience. Although residents are required to take part in formal educational activities, these doctors generally spend the bulk of their time-typically 50 to 80 hours a week-caring for patients. Mayo pays its residents annual "stipends" of over $40,000 and also provides them with health insurance, malpractice insurance, and paid vacation time. The Federal Insurance Contributions Act (FICA) requires employees and employers to pay taxes on all "wages" employees receive, and defines "wages" to include "all remuneration for employment." FICA defines "employment" as "any service ... performed ... by an employee for the person employing him," but excludes from taxation any "service performed in the employ of ... a school, college, or university ...
if such service is performed by a student who is enrolled and regularly attending classes at [the school]," §3121(b)(10). Since 1951, the Treasury Department has construed the student exception to exempt from taxation students who work for their schools "as an incident to and for the purpose of pursuing a course of study." In 2004, the Department issued regulations providing that "[t]he services of a full-time employee"-which includes an employee normally scheduled to work 40 hours or more per week-"are not incident to and for the purpose of pursuing a course of study," 26 CFR §31.3121(b)(10)-2(d)(3)(iii).
The Department explained that this analysis "is not affected by the fact that the services ... may have an educational, instructional, or training aspect," Ibid. The rule offers as an example a medical resident whose normal schedule requires him to perform service 40 or more hours per week, and concludes that the resident is not a student. Mayo filed suit asserting that this rule was invalid, and the District Court agreed. The Eighth Circuit reversed. The Supreme Court granted certiorari.] ROBERTS, C.J. ... [R]egulation, like legislation, often requires drawing lines. Mayo does not dispute that the Treasury Department reasonably sought a way to distinguish between workers who study and students who work....
Focusing on the hours an individual works and the hours he spends in studies is a perfectly sensible way of accomplishing that goal. The Department explained that an individual's service and his "course of study are separate and distinct activities" in "the vast majority of cases," and reasoned that "[e]mployees who are working enough hours to be considered fulltime employees ... have filled the conventional measure of available time with work, and not study," 69 Fed. Reg. 8607. The Department thus did not distinguishclassroom education from clinical training but rather education from service.
The Department reasonably concluded that its full-time employee rule would "improve administrability," id., at 76405, and it thereby "has avoided the wasteful litigation and continuing uncertainty that would inevitably accompany any purely case-by-case approach" like the one Mayo advocates, United States v. Correll, 389 U.S. 299, 302 (1967). As the Treasury Department has explained, moreover, the full-time employee rule has more to recommend it than administrative convenience. The Department reasonably determined that taxing residents under FICA would further the purpose of the Social Security Act (SSA) and comport with this Court's precedent.
As the Treasury Department appreciated, this Court has understood the terms of the Social Security Act to "‘import a breadth of coverage,'" 69 Fed. Reg. 8605 (quoting Social Security Bd. v. Nierotko, 327 U.S. 358, 365 (1946), and we have instructed that "exemptions from taxation are to be construed narrowly," Bingler v. Johnson, 394 U.S. 741, 752 (1969). Although Mayo contends that medical residents have not yet begun their "working lives" because they are not "fully trained," Reply Brief for Petitioners 13 (internal quotation marks omitted), the Department certainly did not act irrationally in concluding that these doctors-"who work long hours, serve as highly skilled professionals, and typically share some or all of the terms of employment of career employees"-are the kind of workers that Congress intended to both contribute to and benefit from the Social Security system, 69 Fed. Reg. 8608.
The Department's rule takes into account the SSA's concern that exempting residents from FICA would deprive residents and their families of vital disability and survivorship benefits that Social Security provides, Id., at 8605. Mayo wonders whether the full-time employee rule will result in residents being taxed under FICA but denied coverage by the SSA. The Government informs us, however, that the SSA continues to adhere to its longstanding position that medical residents are not students and thus remain eligible for coverage. Brief for United States 29-30; Tr. of Oral Arg. 33-34. ***
We do not doubt that Mayo's residents are engaged in a valuable educational pursuit or that they are students of their craft. The question whether they are "students" for purposes of §3121, however, is a different matter. Because it is one to which Congress has not directly spoken, and because the Treasury Department's rule is a reasonable construction of what Congress has said, the judgment of the Court of Appeals must be affirmed. It is so ordered.
Case Questions
1. Utilizing the Chevron framework, how did the Court respond to the first question of whether Congress has "directly addressed the precise question at issue"?
2. Did the Court find that the Treasury Department's interpretation is "based on a permissible construction of the statute" under Chevron's second step?