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Military Wages higher than Medicare Wages


Yardley CPA

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No clue from me Mr. Yardley.  Can't imagine any scenario where Medicare wages would be less than taxable wages.  I believe it to be a mistake.  W-2 probably was issued from the gov't office in Indianapolis.  Wouldn't be the first mistake.

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It could be differential wages. See #38 below.

This from an IRS page:

Quote

Military Differential Pay

Note: Rules for reporting military differential pay changed Jan. 1, 2009. The answers below reflect the current information. For information on reporting military differential pay before 2009, see Publication 15 for the appropriate year.

Q-36: What is military differential pay?

A-36: Some employers voluntarily agree to continue paying full wages to their employees who are called to active duty. This is commonly referred to as differential pay. Differential pay is any payment made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represents all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer.

Q-37: If an employer pays military differential pay to an employee called to active duty, are these payments considered wages?

A-37: Yes, for income tax purposes.

Q-38: What is the tax treatment of military differential pay?

A-38: Beginning in 2009, military differential pay is wages and should be reported in box 1 of Form W-2 as wages for income tax purposes. Military differential pay is includible as wages for income tax purposes on Form W-2, but is excludable from social security and Medicare taxes (FICA).

Certain compensation paid by state or local government that is received for active service in a combat zone by members of the Armed Forces of the United States is excludable from gross income. Combat zone pay is not military differential pay.

Q-39: If an employee is called to active duty and receives military differential pay, how are these payments reported by the employer to the employee?

A-39: Employers should report military differential pay as wages in box 1 of Form W-2. These amounts are subject to withholding for income tax and should be reported on Form 941.

Q-40: How does a person who receives military differential pay report this on the federal income tax return?

A-40: These amounts are included in wages on Line 7 of Form 1040.

 

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When taxable wages are greater than social security wages, it could be one of several types of pay:

  • bonus such as a reenlistment bonus or medical specialties, or other bonuses
  • flight pay
  • incentive pay for doctors, submarines or other specialties

with combat pay: taxable wages are lower than social security wages

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On ‎7‎/‎21‎/‎2018 at 3:38 PM, FDNY said:

Yes, I have 1 where the differential was due to combat zone pay and another I assumed was active duty non combat zone.

I went to look at W2 from DFAS and FICA was higher than wages due to combat duty, opposite of your example.  So I have no clue.

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I received this from the spouse of the taxpayer in question:

I am sure that the difference in his Wages vs. Medicare Wages is because of his BAH housing allowance, which I believe is not subject to fed tax and was around $2,000+/mo.  I have no idea how to get a letter or who to get it from regarding this discrepancy.  I can’t even access his old pay stubs on the mypay website at this point…..  Only W-2s.  

Could the difference be due to the housing allowance??

Thoughts???

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BAH and BAS are not reported on the W-2 at all.   They are not subject to FICA and Medicare.   That is not the difference.

If you want to know the reason there is a difference, ask to see the 12/31 LES (leave and earnings statement).  That will show all of the various sources of pay and you can see what is included in taxable wages and what is not.  You will see that there is one of the types of compensation I described above:  bonus, flight pay, medical differential etc.

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