Important Tax Update to All Employers



Withholding Requirements for All Employees

Effective: January 1, 2004


Ohio Revised Code Section 718.03 adopted June 2003 amended the way that municipal tax must be reported.


Effective January 1, 2004, all employers must withhold municipal tax only on “qualifying wages”, which are wages as defined in Internal Revenue Code Section 3121(a), without regard to any wage limitation. Generally, qualifying wages are reported in the Medicare Wage box of Federal Form W-2. In addition, income from Supplemental Unemployment payments (SUB-Pay) and exercise of stock options must be added to the income reported in the Medicare Wage box. This total should then be reported in the Municipal Wage box and the appropriate tax withheld.


All income deferred into any qualified or non-qualified plan is subject to withholding in the year of deferral. IRC Section 125 wages (“caferteria plans”) are not included in the definition of Medicare wages and should not be deducted from the Medicare Wage box. Medicare Exempt Employees are subject to the requirements for “qualifying wages” in the Medicare Wage Box even though that box will remain blank.


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