Medicare wages and tips are the amounts from your job that are subject to Medicare tax, including most cash pay and reported tips, even if those amounts are not fully taxable for income tax purposes.

What “Medicare wages and tips” means

On your W‑2, Box 5 (“Medicare wages and tips”) shows what your employer reports as subject to Medicare tax.

This figure can be higher than your “wages, tips, other compensation” in Box 1 because some pre‑tax deductions (like 401(k) contributions) reduce income tax wages but do not reduce Medicare wages.

What counts as Medicare wages

Generally included:

  • Regular salary or hourly pay
  • Overtime, bonuses, and most commissions
  • Reported cash tips you receive from customers
  • Certain taxable fringe benefits (e.g., group term life insurance above federal thresholds)

Common amounts still subject to Medicare tax even if “pre‑tax” for other purposes:

  • 401(k) and other traditional retirement plan deferrals
  • Some cafeteria plan items that are exempt from income tax but not Medicare

What does not count

Some items are not Medicare wages, for example:

  • Certain employer-funded benefits that are fully excluded from wages by law
  • Reimbursements under accountable plans (proper business expense reimbursements)
  • Some pre‑tax cafeteria plan benefits that are explicitly exempt from FICA/Medicare

The exact treatment depends on the type of benefit and the underlying tax rules.

Medicare tax rates on wages and tips (2026 context)

For 2026:

  • 1.45% Medicare tax on all covered wages for the employee (matched by the employer)
  • No wage cap for Medicare wages (unlike Social Security, which is limited to a wage base)
  • An additional 0.9% Medicare tax applies to wages over 200,000 dollars from a single employer; employers must withhold this extra amount once an employee’s pay crosses that threshold in the year.

High earners therefore see a higher marginal Medicare tax rate on the portion of wages above that threshold.

Why “Medicare wages and tips” matters for you

  • It determines how much Medicare tax is withheld from your paycheck.
  • It can affect how you reconcile Additional Medicare Tax on your tax return (Form 8959 for many taxpayers with high incomes).
  • Understanding it helps you check your W‑2 for accuracy and avoid under‑ or over‑withholding issues related to your wages and tips.

If you share where you’re seeing the phrase (for example, on TurboTax, your W‑2, or a specific form), a more tailored explanation can be given for that exact context. Information gathered from public forums or data available on the internet and portrayed here.