Income Tax Department » Qualifying Wages for Withholding

Hicksville Qualifying Wages for Withholding

EFFECTIVE DATE: January 1, 2004
(H.B. 95 - Ohio Revised Code Sec. 718.03)

Medicare Wages
An employer is required to withhold only on “qualifying wages”, which are wages as defined in Internal Revenue Code Section 3121 (a), generally the Medicare Wage in Box 5 of the Form W-2, with an exception to include exempt employees hired before April 1, 1986.

  • Medicare Exempt Employees – are subject to the requirements for “qualifying wages” in the Medicare Wage Box of the Form W-2 even though that box will remain blank.
  • Cafeteria Plans – Internal Revenue Code Section 125 wages are not included in the definition of Medicare wages and do not need to be deducted from the Medicare Wage Box.
  • 401(k), 457 Supplemental Unemployment Compensation Benefits – These items should all be included in the Medicare Wage Box and are subject to withholding requirements.
  • Nonqualified Deferred Compensation Plan – Income from nonqualified plans are included in the definition of “qualifying Wages” at the time the income is deferred and is subject to withholding requirements. (Distributions received after January 1, 2004 will not be subject to local taxation.)
  • Stock Options – Income from the exercise of stock options is included in the definition of “qualifying wages” and is subject to withholding requirements.
  • Disqualifying Disposition of and Incentive Stock Option – Employer is not required to withhold, but the income is considered “qualifying wages” and the recipient is liable for the tax.

Note: As an employer, if the Medicare Wage Box is not the largest wage figure on the W-2 form a written explanation is required.