All states that require income tax withholding also require employers to provide employees with Form W-2, Wage and Tax Statement, regardless of whether employers withheld federal and state income taxes from the employees’ pay.
While keeping up with yearly tax law changes is complicated as it is, changes that were proposed for 2023 Form W-2 are another thing employers need to pay attention to.
Form W-2 provides employees with information that has to be included in their income tax forms. It also gives the Internal Revenue Service (IRS) and the Social Security Administration (SSA) information necessary to verify employees’ income tax returns.
Employers must prepare Form W-2 for employees each year, showing their total gross earnings, Social Security earnings, Medicare earnings, and federal and state taxes withheld from employees.
Employers must give Form W-2 to employees by the end of January of the year following the tax year. For example, if they are reporting on employee income for 2022, employers must furnish employees with a 2023 Form W-2 by January 31, 2023.
Also, by the end of January, employers need to file 2023 Form W-2, along with Form W-3, for each employee with the IRS and the SSA, for the previous year. The SSA uses the information on these forms to calculate the Social Security benefits each worker is entitled to.
Every Form W-2 has the same fields, no matter the employer. It is divided into state and federal sections since employees must file taxes on both levels. There are fields that provide the employer’s information, including the company’s Employer Identification Number (EIN) and the Employer’s state ID number. The remaining fields mainly focus on the details of the employee’s income from the previous year.
The form includes the employee’s total earnings from the employer for the year along with the amount withheld in taxes from the employee’s paycheck, separated into the withholding for federal income tax, Social Security tax and more. If the employee also works for tips, a field shows how much money in tips the employee earned for the year.
The official Form W-2 includes six copies:
- Copy A to file with the SSA;
- Copy B for the employee to file with their federal tax return;
- Copy C for the employee’s records;
- Copy D for the employer’s records;
- Copy 1 to file with State, City, or Local Tax Departments; and
- Copy 2 for the employee to file with their state, city, or local tax return.
On September 29, 2022, the IRS published the draft form of the 2023 Form W-2, suggesting several changes in order to make it more concise.
The IRS reduced the pages from 11 to five by placing Copies B, C, and 2 on the same page. To fit these copies on one page, some of the boxes were moved. In addition, all the instructions were combined on one separate page. The agency also eliminated Copy D, the employer’s copy, and the employer instructions that appeared on the reverse side of the copy.
However, after receiving feedback on changes proposed to 2023 Form W-2, the IRS opted to revert to the current design and posted a revised draft for 2023 on October 31. The revised draft for the 2023 Form W-2 keeps the current number of pages with copies on separate pages. Although this draft includes Copy D, the IRS noted that it most likely will be eliminated from the final version of the 2023 Form W-2.
The IRS also said the design for the first draft will likely be implemented for the tax year 2024. The delay in reducing the number of pages is intended to give employers enough time to adapt.
In a January 18 news release, the IRS reminded employers that they must file their copies of 2023 Form W-2 and Form W-3 with the SSA by January 31. The agency also reminded employers that this deadline is strict and that they only grant extensions for very specific reasons.
According to the IRS, penalties for late submission can add up quickly, especially for large businesses. Companies submitting up to 30 days late can incur a penalty of $60 per form, rising to $120 from 31 days through August 1, and up to $630 for intentional disregard. For a company with 5,000 employees filing all forms after January 31 could amount to penalties over $250,000.
As a best practice, the IRS recommends reaching out to employees to verify and update their names, addresses, and Social Security numbers, as applicable.
Payroll taxes are confusing enough without the added stress of figuring out which regulations to follow and changes made to payroll tax forms each year. With so many complex details and updates to manage, it is no wonder why so many businesses face errors and costly fines. However, staying compliant with the 2023 Form W-2 requirements is absolutely essential for any business.
Managing payroll taxes can be a time-consuming and difficult administrative task, but using the right technology can simplify payroll processing and give organizations time back to focus on other areas of the business. In addition to handling federal and state laws and payroll tax rules that constantly evolve, employers can outsource verifying check dates, confirming that taxable wages are calculated properly, and analyzing proper withholdings. Thus, they avoid tax complexities and ensure that their payroll is processed accurately while staying compliant with necessary regulations.