One of the essential documents employees have is a W-2. Filling out a W-2 form can seem overwhelming for both employees and employers. This form usually isn’t completed by current and former employees but rather by the employer. If you’re an employer with questions about how to fill out a W-2 form, here are some tips on how to complete the form W-2 accurately and on time.
What is a W-2 Form?
Let’s start with the basics: the W-2 form, also known as the wage and tax statement, is an official document that reports an employee’s taxable wages during the tax year. It also includes the following things withheld throughout the year:
- Federal income tax withheld
- State tax
- If applicable, local tax information
- Social Security tips
- Medicare wages paid
- Allocated tips
- Dependent care benefits
Employees, or their accountants, take the information on this form and utilize it when filing a federal, state, and/or local income tax return. It’s crucial to note pre-tax benefits, health savings accounts, health insurance premiums deducted, and income put toward an employee’s retirement plan, such as an IRA or a 401 (k), are not included in an employee’s taxable wages.
Each employee must receive a form W-2 if they earn $600 or more in wages during the year, and this needs to happen regardless of whether they are full-time or part-time workers.
When Are W-2 Forms Due?
W-2 forms are due January 31st of every year. This gives employees enough time to file tax returns properly. It’s important to note employers must also submit copies of these tax forms to the Social Security Administration (SSA) by January 31st. Failure to do so could result in hefty penalties from the Internal Revenue Service (IRS) and social security administration (SSA.)
W-2 vs. W-4: What’s the Difference?
What’s a w-4? W-4 is different from a W-2. The W-4 form, also known as the employee’s withholding allowance certificate, is an official document used by employers to determine how much income tax to withhold from each employee’s paychecks. Employees complete this form with information about their personal and financial situation so that their employer can accurately withhold taxes throughout the year. Employees complete this form when they begin at a company.
A Step-by-Step Employer’s Tax Guide
Now you have an overview of the W-2 and understand how a form w-2 differs from a form w-4. Let’s now take a detailed look at how to complete the form w-2.
Step 1: Gather Necessary Information
The first step in completing a W-2 form for an employee is to gather all of the necessary information. This means having your company name, address, and Employer Identification Number (EIN) on hand. You will also need information about your employees—their name, address, employee’s social security number, and employee wages earned during the year.
Step 2: Fill Out Header Information
On the top left corner of form W-2, you will see boxes with header information, including your company name and EIN. Make sure all this information is correct before moving on to other parts of the form.
Step 3: Enter Employee Information
The next part of the form requires you to enter employee data, including their name and the employee’s social security number. Ensure these details are entered correctly for employee wages and taxes withheld from those wages. This will help your employees accurately report income on their tax returns at the end of the year.
Step 4: Report Wages & Taxes Withheld
The remainder of the form W-2 consists of boxes that report employee wages and taxes withheld throughout the year. These boxes refer to salaries earned during a tax year as well as any applicable taxes taken from those wages, including:
- Federal income tax withholding
- State income tax
- Social security tax
- Medicare taxes
Employer payroll records should have all this information readily available. Double-check these numbers before submitting complete W-2 forms—you don’t want any mistakes here, or you may trigger an audit from the Internal Revenue Service (IRS.)
Completing a Form W-2
Boxes 1 through 10
Box 1 is where you list total taxable wages. This number should agree with the total wages reported on the employee’s last paycheck stub for the year. In this box, you will include all forms of wage income subject to federal income tax, such as regular salary/wages, bonuses, tips, etc. It does not include nontaxable payments such as 401(k) contributions or reimbursements for business expenses.
Boxes 2 through 6 are for federal income taxes, social security wages/taxes, and Medicare wages/taxes paid for the year. Boxes 7 and 8 are for tips, with 7 showing reported tips and 8 documenting the allocated tips received. Box 9 is the easiest (it’s blank!), and Box 10 shows any dependent care benefits received during the year.
Boxes 11 through 14
Box 11 is for taxable deferred compensation plans, such as those offered to government employees through 457(b). Box 12 is the most difficult on the form, as it requires employers to choose from twenty-six available codes to specify different types of compensation for the employee appropriately. Codes are on the back of the form.
Box 13 has three checkboxes to choose from. One signifies a statutory employee (an independent contractor who is taxed), the other indicates participation in a retirement plan, and the last box shows receipt of third-party sick pay. Finally, Box 14 is to show deductions for any of the following:
- Clergy allowance
- Union dues
- Health insurance
- Disability insurance
- Nontaxable income
- Educational assistance
- Charitable contributions
Boxes 15 through 20
These boxes are for state and local taxes. In Box 15, employers fill in their state and employer state ID numbers. Box 16 is for an employee’s total state-taxable earnings and tips. While Box 17 shows the state income tax withheld for the year. Box 18 demonstrates taxable income subject to local taxes such as city, county, etc. Box 19 shows the amount of local taxes that were withheld. Finally, Box 20 is for the name of the local tax department to which the employee owes local income tax. Local income taxes may be owed to a city municipality or a larger organization in charge of local tax collection.
Providing the Form to Your Employees
Once forms are complete, employers either mail the form to employees or offer a copy through an online human resources portal. Again, regardless of whether you’re sending it in the mail or providing a copy online, it’s important to note you are required to ensure your employees receive a w-2 by the end of January. Sending it by this date ensures they have sufficient time to file taxes.
Employees who still need to receive their W-2 form from their employer must reach out to their human resources department to receive a copy of their W-2 so they can report total taxable income.
Penalties For Not Filing
Employers must adhere to these filing requirements because there can be steep penalties for failing to do so correctly or on time. Employers who complete forms W-2 correctly or within the allotted time frame may avoid fines. Furthermore, employers may also face criminal prosecution if they commit intentional wrongdoing related to withholding taxes from employees’ paychecks or fail to file required paperwork correctly and on time.
When to Seek a Financial Professionals Help
As a business owner, taxes can be confusing and overwhelming. Tax laws are constantly changing and have ever-increasing complexities, so it pays to have an expert on your side. Working with a financial advisor and a certified public accountant (CPA) on taxes can help ensure you’re taking advantage of all the deductions available to reduce your taxable income and maximize your business profits. They can also help you better understand the w-2 form, how to complete it, and answer any questions you may have.
The Bottom Line – You’re Ready to Complete a W-2
Completing a form W-2 may seem daunting at first glance, but with some preparation and guidance from a financial professional, you should get through it without too much hassle. Gathering accurate information from your employees is vital. Ensure employee names are correct, addresses, social security numbers, etc. Do this, and you can avoid costly delays or even an audit by the IRS.
Next, you will need to fill out the rest of the w-2 form, which means calculating wages earned and taxes withheld (boxes 1 through 20). Filing wage and tax statements can be complicated, but understanding how to complete a W-2 form doesn’t have to be. After reading this article, you should be ready to file with confidence!
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If you still have questions when completing a W-2 form or filing your taxes, consider becoming a Planning Made Simple member or working with your financial professional. An experienced professional can guide you through the process and help answer questions.