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Date:   Sat, 08 Apr 2006
From:   Dennis

On the exercise of ISOs that resulted in W-2 income of $150,000, the Medicare income was over $1 million and Medicare tax was paid on that amount. Why is that?

Answer

Date:   01 May 2006

Hello Dennis,

Because someone made a mistake. There is no Medicare income from the exercise of an ISO. Go tell your payroll department to fix it, issue a corrected W-2 and refund the excess Medicare tax.

Good luck!

Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.