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Optimizing Form W-2 Management

February 26, 2024 by Gordon Middleton

All US employers are required to send a report to employees showing their total wages and deductions, so they can include the information on their income tax returns. To do so, they use the IRS Form W-2, Wage and Tax Statement.

Given that organizations may face penalties if they fail to complete employees’ W-2 forms accurately and on time, it is important for employers to understand compliance requirements, what information they need to provide as well as filing requirements and deadlines.

Form W-2 Purpose

Form W-2 reports taxable wages paid to an employee during a one-year period, along with employment taxes withheld for that year. Employers are legally required to send out this form to employees regardless of whether they worked for one day or one year and no matter the amount of their earnings or wages.

Form W-2 can be sent in either paper or digital form and should be received by employees no later than January 31 of the following year. The form is filed for the previous year. In other words, Forms W-2 that employees received in January 2022 reflect their income for 2021.

The form is divided into state and federal sections since employees need to fill in taxes on both levels. The standard information on a Form W-2 includes:

  • Employee’s Social Security number;
  • Employee’s personal information, such as their name, address, and zip code;
  • Business’s name, address, zip code, and Employer Identification Number (EIN);
  • Wages, tips, and other compensation; and
  • Taxes withheld, such as Social Security, Medicare, and income taxes.

Form W-2 Filing Instructions

Employers need to complete Forms W-2 for each employee and file copies with the Social Security Administration (SSA) by January 31 each year. In years when January 31 falls on a weekend, the deadline is the next business day. To submit forms to the SSA, employers use the transmittal Form W-3 and have the option to submit forms W-2 and W-3 by mail or electronically using an authorized IRS e-file provider.

A one-time, 30-day extension is possible for businesses that cannot file on time, but it is important to note that the extension is only for filing with the SSA, employees must receive their Form W-2 by January 31. Also, any Forms W-2 which are returned as undeliverable must be kept on file for four years.

Electronic Filing

Beginning with tax year 2023, employers filing 10 or more Forms W-2 need to file electronically unless granted a waiver by the IRS. (Lowered from the previous threshold of 250) Given that encouragement to file forms electronically, employers should understand the basics of Form W-2 online filing.

Online filing of Forms W-2 is possible at the SSA’s Business Services Online website. This is a free and secure method preferred by the SSA over submitting paper records. Employers register on the SSA’s BSO website, create and save their Forms W-2 using a special file format and submit them on the website.

The BSO offers two options:

  • If employers need to file 50 or fewer Forms W-2 at a time, they can use BSO to create them online. They can save and print them to send to employees and submit them to the SSA electronically;
  • If employers need to file more than 50 Forms W-2, they can use the file upload feature in BSO instead to mass upload completed forms.

In addition to meeting the filing requirements, employers should also understand Form W-2. Every W-2 has the same fields, no matter the employer. Boxes A through F list identifying information about businesses and employees while numbered boxes record financial information.

Penalties

The most common issues employers face when it comes to Forms W-2 are submitting them late, failing to include all required information, or including incorrect information. If they cannot show reasonable cause for any of these mistakes, employers may face different penalties.

Given that penalties have increased due to adjustments for inflation and the higher penalty amounts apply to returns required to be filed after December 31, 2022, it is critical for employers to understand Form W-2 and take the necessary steps to ensure compliance. The amount of penalties is based on when employers file the correct Form W-2 and may include:

  • $60 per Form W-2 if employers correctly file within 30 days of the due date. In this case, the maximum penalty is $588,500 per year;
  • $120 per Form W-2 if employers correctly file more than 30 days after the due date but by August 1. The maximum penalty is $1,766,000 per year; and
  • $310 per Form W-2 if employers after August 1, do not file corrections, or do not file required Forms W-2. The maximum penalty is $3,532,500 per year.

Penalties are applied in the same manner if employers fail to provide correct Forms W-2 to employees and cannot show reasonable cause. If any failure to provide a correct Form W-2 to an employee is caused by intentional disregard of the requirements to furnish a correct W-2 statement, the penalty is $630 per Form W-2 with no maximum penalty. If employers willfully file a fraudulent Form W-2 for payments that they made to another person, that person may be able to sue them for damages. If found liable, employers may have to pay $5,000 or more in damages and be subject to criminal sanctions.

Meeting Requirements

With the risk of costly fines for late, incomplete or inaccurate forms, it is important for employers to make sure they understand Form W-2 and meet all the necessary requirements. To ensure Form W-2 compliance they can prepare the forms ahead of time, file them on time, make sure to provide all necessary information, double-check entries on the form, send employees copies on time and review the form before submitting.

To ensure your Form W-2 process is accurate, employers can outsource payroll tax consulting to improve compliance and prevent the risk of costly fines for late, incomplete, or inaccurate Forms W-2.

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