Medicare wages and tips on a W-2 show the total earnings an employee had that were taxed for Medicare during the year. This includes salaries, hourly wages, bonuses, commissions, and tips—basically, all taxable income.
You’ll find this in Box 5 of the W-2 form that employers send out at tax time. These wages help determine Medicare tax amounts and can also affect eligibility for certain Medicare benefits later on.
Why do Medicare wages and tips matter for businesses?
Employers need to track and report these wages for a few key reasons:
- Tax Compliance: Employers must withhold and send Medicare taxes to the IRS. Accurate reporting ensures they follow tax laws.
- Employee Benefits: Medicare taxes fund healthcare for retirees and people with disabilities. Proper reporting makes sure employees contribute their share.
- Legal Requirements: Reporting wages and tips correctly helps businesses avoid fines and other legal issues.
- Payroll and Budgeting: Keeping accurate records makes payroll management, labor cost tracking, and financial planning easier.
- Employee Paychecks: Employees rely on correct reporting to ensure the right amount is withheld for Medicare taxes.
Which wages and tips are taxed for Medicare?
Not everything is taxed, but here’s what counts:
- Salaries and Wages: Regular pay, including hourly wages, salaries, and bonuses.
- Tips: Cash tips, credit card tips, and any employer-allocated tips.
- Commissions: Earnings based on sales or performance.
- Bonuses: Extra payments for meeting goals or hitting milestones.
- Sick Pay and Vacation Pay: Paid time off for illness or vacation.
- Taxable Fringe Benefits: Some perks, like employer-paid health insurance over certain limits, are taxable.
- Severance Pay: Payments after job termination that are considered wages for Medicare tax purposes.
What’s the Medicare tax rate?
For 2024, the Medicare tax rate is:
- 1.45% for both employers and employees (total of 2.9%).
- An extra 0.9% for high earners:
- Over $200,000 for single filers.
- Over $250,000 for married couples filing jointly.
- Over $125,000 for married individuals filing separately.
The extra 0.9% is only paid by the employee—employers don’t match it.
For more details, check out IRS Publication 15 (Circular E): Employer’s Tax Guide.
How to report Medicare wages and tips on a W-2
Employers report Medicare wages and tips in Box 5 of the W-2. This number should include all taxable compensation for the year.
Getting it right helps employees file taxes properly and keeps businesses compliant with tax laws.
