• LinkedIn
  • YouTube
  • Twitter
  • Facebook
  • Google+

Court: No FICA refund, no breach of fiduciary duty either

Get PDF file

by on
in Office Management,Payroll Management

You don’t breach any fiduciary duty to employees if you don’t seek a FICA refund on their behalf, and you also don’t tell them to apply to the IRS for their own FICA refund, a federal trial court has ruled. (Reuss v. Orlando Health, Inc., No. 6:15-cv-00805, D.C. M.D. Fla., 2015)

Medical residents and FICA taxes. In 2004, the IRS issued regulations that required medical residents to be treated as FICA-taxable employees. Nevertheless, in 2010, it honored FICA refund claims filed by hospitals before April 1, 2005.

This employee’s class action lawsuit stemmed from those events. His employer, a hospital, filed FICA refund claims on its behalf and for its employee-residents in 2004, for FICA taxes paid it in 2000. The hospital didn’t file any claims for the years 2001–2005. Employees received their 2004 refunds in 2012, which was when the employee claimed he learned that the hospital passed up refunds for 2001–2005. He couldn’t pursue a FICA refund claim on his own because the statute of limitations had run, so he sued his employer, alleging that its failure to disclose or otherwise apply for FICA refunds on employees’ behalf was a breach of fiduciary duty.

No breach of fiduciary duty here. The trial court dismissed his case.

Court: Under state law, fiduciary duties may be express or implied. Since there was no express fiduciary duty in this case, an implied fiduciary duty exists when there is a degree of dependency on one side and an undertaking on the other side to protect and/or benefit the dependent party. The court found that the employer’s failure to apply for a FICA refund wasn’t a breach of an implied fiduciary duty because it wasn’t required to notify employees of refund opportunities or to file on their behalf for years when it chose to not seek a refund.

THE TAKEAWAY: We don’t know why the hospital left tax refund money on the table. Perhaps it fell into the IRS’ offset program.

What is it: Any tax refund you’re owed can be used to offset another tax debt, even tax debts of a different nature—employer FICA refunds can be used to offset corporate underpayments, for example. However, if FICA taxes are overpaid, you can avoid ill will by letting employees know that they can seek their own refunds.

Leave a Comment