W-2

Why do you need to file a W-2?

Form W-2, Wage and Tax Statement, is a legally required document in the U.S. tax system. Employers need to file a W-2 for several important reasons:

IRS Requirement

• Employers are mandated by the Internal Revenue Service (IRS) to report wages, salary, and other compensation paid to employees. This ensures that employees are reporting their income correctly when they file their individual income tax returns.

Social Security Administration

• A copy of the W-2 is sent to the Social Security Administration (SSA) to record earnings for the purpose of accruing Social Security and Medicare benefits. This is crucial for determining an individual’s future Social Security benefits.

Employee’s Tax Reporting

• Employees need their W-2s to accurately prepare and file their individual federal income tax returns. The W-2 provides the information necessary for employees to determine how much they earned, how much was withheld for federal and state taxes, Social Security, and Medicare, as well as any other deductions.

State and Local Tax Reporting

• If employees are subject to state or local income taxes, the W-2 provides necessary wage and withholding information for those jurisdictions as well.

Verification of Employment

• Beyond tax purposes, W-2s are often used as proof of income. When someone applies for a loan, for instance, the lender might request copies of W-2 forms to verify the applicant’s income.

Compliance and Penalties

• Failure to provide W-2s or providing incorrect W-2s can result in penalties for the employer. These penalties can increase depending on how late the correct information is provided, with additional penalties if the IRS determines there was intentional disregard of the filing requirements.

Tracking of Special Compensation

• The W-2 also captures other forms of compensation and benefits, such as contributions to a retirement plan, the value of employer-provided health insurance, or contributions to a flexible spending account. This information is essential for various tax provisions and benefits.

In essence, the W-2 is a fundamental component of the U.S. tax infrastructure, ensuring that wages and withholdings are accurately reported, taxes are correctly calculated, and individuals receive the appropriate benefits.

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Who needs to file a W-2?

Form W-2, Wage and Tax Statement, must be filed by employers who pay remuneration, including noncash payments, for services performed by an employee, including nonresident aliens, during the year. In more specific terms:

Any Employer

• Any organization, individual, or business that has employed someone and paid them wages, tips, or other compensation is generally required to file a W-2 for each employee.

Compensation Threshold

• Even if you pay an employee less than $600 in a year (which is the reporting threshold for Form 1099-NEC), you still must file a W-2 for that employee.

Tax Withholding

• If you withhold any federal income tax from an employee’s wages, regardless of the amount, you need to provide them with a W-2.

Other Withholdings

• Even if you don’t withhold federal income tax (because the employee is exempt), but you withhold Social Security and Medicare taxes, you still must issue a W-2.

Special Types of Employment

• This includes household employees, farm labor, and workers who receive wages from church or church-controlled organizations that are exempt from Social Security and Medicare taxes. Each of these categories has specific conditions and exceptions, so you’ll need to refer to the IRS guidelines for the exact requirements.

For Nonresident Alien Employees

• Employers must file a W-2 for nonresident alien employees unless the alien is exempt under the Internal Revenue Code or a tax treaty.

It’s worth noting that independent contractors, freelancers, and other self-employed individuals typically do not receive W-2 forms. Instead, they receive Form 1099-NEC or other 1099 forms that report non-employee compensation, depending on the nature of their income.

Lastly, employers who provide a W-2 to their employees must also send a copy to the Social Security Administration. This process ensures that employees are credited for the Social Security and Medicare contributions that are reported on the W-2.

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Are there any exemptions to filing a W-2?

Form W-2, Wage and Tax Statement, is a standard requirement for reporting wages and compensation paid to employees. While the vast majority of employers who pay wages or compensation to employees will need to file a W-2, there are a few specific situations or types of payment that are exempt from W-2 reporting or have special reporting requirements:

Certain Group-Term Life Insurance

• • • Employers who pay for group-term life insurance premiums on coverage over $50,000 for an employee don’t need to include amounts for current or former employees over age 65 who aren’t key employees.

Household Employees

• • • Employers who pay wages to household workers (like nannies or housekeepers) in their private homes usually aren’t required to file W-2s unless they pay the worker:
      • $2,300 or more in 2022 (this amount can change in subsequent years), or
      • Withhold federal income tax for the worker, regardless of how much they’re paid.

Election Workers

• • • Compensation paid to election workers is exempt from W-2 reporting if the worker is paid less than $2,000 (as of 2022) in a year. If an election worker earns $2,000 or more, the employer must report these wages on Form W-2.

Certain Foreign Workers

• • • Some nonresident alien workers and those under specific visa categories might be exempt from Social Security and Medicare taxes. However, wages for services they perform in the U.S. are generally subject to federal income tax withholding and should be reported on Form W-2.

Ministers

• • • For ministers who are considered self-employed for Social Security purposes, employers generally do not withhold Social Security or Medicare taxes and do not report wages on a W-2. However, some ministers may have a voluntary agreement to have such taxes withheld, in which case a W-2 would be issued.

Military Differential Pa

• • • If an employer pays differential wages to an employee who is on active duty in the military for 30 or fewer days, they don’t need to include these wages on the W-2. If active duty exceeds 30 days, differential pay is taxable and should be reported.

Business Travel Allowances

• • • Per diem or mileage allowances paid to employees under an accountable plan are not reported on Form W-2, as long as they aren’t in excess of federal limits and the employee accounts for them to the employer.

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What is the deadline for filing a W-2?

Deadline to Furnish W-2s to Employees

• • • Employers must provide (or “furnish”) copies of the W-2 to their employees by January 31 of the year following the tax year.

Deadline to File W-2s with the Social Security Administration (SSA)

• • • Employers must also send a copy of the W-2 forms to the SSA. This deadline is also January 31.

Note: If January 31 falls on a weekend or a legal holiday, the deadline would be the next business day.

It’s crucial for employers to meet these deadlines to avoid penalties and ensure that both the SSA and their employees receive the necessary information for tax and benefits purposes.

If an employer realizes they’ve made an error after sending the W-2 forms, they can file a corrected W-2 (W-2c) to address the mistake.

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What is required to file a W-2?

To file a Form W-2, you will need certain information about both the employer (payer) and the employee (the person or business receiving the payment). Here’s what is required to file a W-2:

Information about the Employer

• Employer’s Name and Address
  • Provide your legal business name and mailing address.
• Employer’s Taxpayer Identification Number (TIN)
  • This could be your Employer Identification Number (EIN) or your Social Security Number (SSN), depending on your business structure. If you’re a sole proprietor, you might use your SSN; if you’re a business entity, you’d use your EIN.
• Employer’s Phone Number
  • Include a phone number where the payer can be reached.

Information about the Employee

• Employee’s Name and Address
  • Provide the legal name and mailing address of the individual or business receiving the payment.
• Employee’s Taxpayer Identification Number (TIN)
  • This must be the recipient’s Social Security Number (SSN) if an individual or as business entity cannot receive a W-2.

Form specific information

• No form specific data is required, however some information should be added to justify the submission of the W-2 form. The fields with amounts will vary based on the situation.

What are the penalties for W-2?

The IRS imposes penalties on employers who fail to file Form W-2 on time, fail to furnish W-2 statements to employees, or make mistakes on these forms. The amount of the penalty depends on the lateness or nature of the violation. Here are the main penalties related to Form W-2 as of my last training data up to 2022:

Late Filing or Failure to File

• If you file the correct W-2 within 30 days of the due date, there is a penalty per W-2.
• If you file the correct W-2 more than 30 days after the due date but by August 1, the higher penalty per W-2.
• If you file the W-2 after August 1 or do not file required W-2s, the penalty is increases again per W-2.

Failure to Furnish Correct W-2 to Employees

• The penalties are the same as the failure to file correct W-2s with the SSA.

Intentional Disregard of Filing or Providing Correct W-2

• If the IRS determines that an employer intentionally disregarded the requirements, the penalty is at least $560 per W-2 with no maximum limit.

Errors on W-2 Forms

• Penalties can be assessed for various errors, such as incorrect amounts, incorrect names or SSNs, or filing on the wrong type of form. The amounts depend on the nature of the error and the timeliness of the correction.

Failure to File Electronically

• Employers who are required to file electronically (because they have 10 or more W-2 forms) but do not may be subject to a penalty unless they have an approved waiver.
  • Note this was 250 forms previously and updated for 2023 filing.

Failure to Report Taxpayer Identification Number (TIN)

• If the employer fails to report the TIN (usually the SSN for employees), they may be subject to a penalty unless they can show reasonable cause.

To avoid these penalties:

• Be sure to file on time.
• Double-check your forms for accuracy.
• Provide copies to recipients by the due date.
• Secure TINs from payees as needed.

Please see the penalties section for details.

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Do you need to e-file a W-2?

Please see the e-file section for details.

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Is state filing required for the W-2?

Please see the state filing section for details.

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What elements make up a W-2 form?

The W-2 form, Wage and Tax Statement, is a comprehensive document detailing an employee’s compensation and tax withholding for the year. Here are the primary elements or boxes that make up the W-2:

Box 1a – Description of property

For stock and debt instruments, enter the issuer’s name and the number of shares or units you held that were exchanged. For stock, also enter the class or classes of stock (for example, preferred, common, etc.) that were exchanged, whether for cash or other property. Abbreviate the class to fit the entry. For example, enter “C” for common stock, “P” for preferred, or “O” for other. Also abbreviate pany subclasses.

Box 1 – Wages, tips, other compensation

Show the total taxable wages, tips, and other compensation that you paid to your employee during the year.

Box 2 – Federal income tax withheld

Show the total federal income tax withheld from the employee’s wages for the year. Include the 20% excise tax withheld on excess parachute payments.

Box 3 – Social Security wages

Show the total wages paid (before payroll deductions) subject to employee social security tax but not including social security tips and allocated tips. If reporting these amounts in a subsequent year (due to lapse of risk of forfeiture), the amount must be adjusted by any gain or loss.

Box 4 – Social Security tax withheld

Show the total employee social security tax (not your share) withheld, including social security tax on tips. For 2023, the amount should not exceed $9,932.40 ($160,200 × 6.2%). Include only taxes withheld (or paid by you for the employee) for 2023 wages and tips.

Box 5 – Medicare wages and tips

The wages and tips subject to Medicare tax are the same as those subject to social security tax (boxes 3 and 7) except that there is no wage base limit for Medicare tax. Enter the total Medicare wages and tips in box 5. Be sure to enter tips that the employee reported even if you did not have enough employee funds to collect the Medicare tax for those tips.

Box 6 – Medicare tax withheld

Enter the total employee Medicare tax withheld. Do not include your share. Include only tax withheld for 2023 wages and tips

Box 7 – Social Security tips

Show the tips that the employee reported to you even if you did not have enough employee funds to collect the social security tax for the tips.

Box 8 – Allocated tips

If you operate a large food or beverage establishment, show the tips allocated to the employee. 

Box 9 – No longer used

This box is no longer used

Box 10 – Dependent care benefits

Show the total dependent care benefits under a dependent care assistance program (section 129) paid or incurred by you for your employee. Include the fair market value (FMV) of care in a daycare facility provided or sponsored by you for your employee and amounts paid or incurred for dependent care assistance in a section 125 (cafeteria) plan. 

Box 11 – Nonqualified plans

The purpose of box 11 is for the SSA to determine if any part of the amount reported in box 1 or boxes 3 and/or 5 was earned in a prior year. The SSA uses this information to verify that they have properly applied the social security earnings test and paid the correct amount of benefits.

Box 12 – Various coded items

Complete and code this box for all items described below. Note that the codes do not relate to where they should be entered in boxes 12a through 12d on Form W-2. For example, if you are only required to report code D in box 12, you can enter code D and the amount in box 12a of Form W-2. Report in box 12 any items that are listed as codes A through HH. Do not report in box 12 section 414(h)(2) contributions (relating to certain state or local government plans). Instead, use box 14 for these items and any other information that you wish to give to your employee. For example, union dues and uniform payments may be reported in box 14.

Box 13

Statutory employee
A worker who earns wages subject to Social Security and Medicare tax but not federal income tax

Retirement plan
Indicates the employee participated in the employer’s retirement plan

Third-party sick pay
Indicates sick pay was paid by a third party, like an insurance company

Box 14 – Other

Employers can report any additional tax information here

Box 15 – State/Payer’s state no

This box indicates the state for which the income and tax details are being reported. It will also include the payer’s state identification number, which is an identifier assigned by the state’s revenue or taxation department.

Box 16 – State wages, tips, etc.

This box reports the total amount of taxable wages you earned in that state.

Box 17 – State income tax withheld

This box reports the total amount of state income taxes withheld from your paychecks for the wages reported in Box 16.

Box 18 – Local wages, tips, etc.

This box reports the total amount of wages subject to local, city or other state income taxes.

Box 19 – Local income tax withheld

This box reports the total amount of taxes withheld from your paychecks for local, city, or other state income taxes.

Box 20 – Locality name

This box defines the local, city or other state tax being paid.

Please see the state filing section for details.

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Remember, not all boxes will be filled out on every W-2 form. Only the relevant boxes for the specific payments made will have amounts or indicators.

Can you correct a W-2?

Yes, you can correct a W-2. The process differs from 1099s as you must file a W-2C form.

Note a W-2 can only be corrected one time as a W-2C cannot be corrected in 1099-Prep. Please see the corrections and negations section for details.

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