The University of Minnesota and the Mayo Clinic got some disappointing news on Tuesday when the U.S. Supreme Court ruled that medical residents do not qualify for the student exemption for income taxes.

The Supreme Court decision upholds a 2005 ruling in favor of the Internal Revenue Service (IRS) that said medical residents are not considered “students” by law and are required to pay income taxes. That ruling was appealed in 2009.

The University of Minnesota and Mayo argued in the appeal that medical residents should be categorized as students, thus exempting them from paying taxes as long as they are attending classes regularly at a school, college, or university.

Because medical residents have been paying income taxes since 2005 following the enactment of new treasury regulations-which eliminated the student tax exemption for medical students who worked more than 40 hours a week-medical residents will see no impact on their paychecks as a result of the decision.

According to the Association of American Medical Colleges, the U.S. Treasury Department collects about $700 million in taxes each year from medical residents. The U said that the institution and its medical residents could have received more than $24 million in refunded income taxes if the ruling had favored the institution.

Both the U of M and the Mayo Clinic released separate statements saying they were “disappointed” in the Supreme Court's decision.

“As the court itself acknowledged, medical residents are engaged in a formal and structured educational program that is an indispensable component of their medical training,” Ted Olson of law firm Gibson, Dunn & Crutcher, who represented Mayo and the U of M, said in a statement. “The Treasury Department's regulation overlooks the important educational pursuits in which residents are engaged.”

Mayo is based in Rochester. More than 1,500 residents and fellows participate in its graduate medical education programs each year through its campuses in Rochester; Jacksonville, Florida; and Scottsdale and Phoenix, Arizona.

The University of Minnesota's medical school has more than 920 medical students and more than 800 residents and fellows. It offers residency programs at the University of Minnesota Medical Center, Fairview, and the University of Minnesota Amplatz Children's Hospital.