Business is more than just its debits and credits, income and expenses, hiring and firing. It’s also a list of statutory responsibilities that a company must comply with.
One of those mandatory periodic actions is the filing of reports. There are many types of them: Forms W-2, W-3, Forms 941, 941-SS, 943, 944, CT-1, and Schedule H (Form 1040).
Today we suggest that you analyze the Form W-2 report. It is the vital report of a company that has employees.
It contains general information about the number of the employee’s wages that the person sees on their paystubs each month and all deductions and taxes paid from it. It is an annual report, and it is filed with the IRS and must also be sent to the employee.
Based on the information received from the employer, the employee completes their annual tax return.
Who has to fill out and file it?
All employers, by January 31, must give their employees (except contracted or self-employed workers) a Form W-2. By complying with this obligation, the employer ensures that the employee can comply with their commitment to complete and file their tax return by April 15.
In addition, the W-2 form is the basis for the calculation of Social Security benefits, which is conducted by the SSA (Social Security Administration). The employer must file the W-2 and the Form W-3 with that agency.
The reporting period, of course, is the previous year. It means that in 2022 the employer should send out a report of the paid employees’ salaries for the year 2021.
The employee includes the information received on the 1040 tax return. To simplify entering the information and avoid errors, you can use various online remote tools that will do this automatically. In addition, the employee should check to see if the wage information in the W-2 matches his paystubs.
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What is contained in W-2?
The W-2 form contains many of the same fields for all employers.
Because taxes are paid at both the state and federal levels, the report sections are divided the same way.
Some fields require an Employer Identification Number (EIN) and an employer’s state ID number. All other fields contain information about the EIN and deductions from the employee’s earnings for the year.
Among these deductions, you have to enter the amount of income tax, social security tax, and others.
The amount of taxes withheld by the employee should compare with the amount of taxes due and payable on their tax return. If more has been paid than necessary, the employee should request a refund of the excess money paid.
How does an employee get a Form W-2?
The form will be completed if your salary is more than $600. As we said above, you will receive a report from your employer at the end of January.
They can provide you with that in hard copy or by email. The W-2 can also be posted on the Internet. If you happen to lose the form you received, you can go directly to the employer or his paystubs provider.
Since the W-2 form is filed with the SSA and the IRS, common mistakes employers make when filling out the report are:
- Copy A of Forms W-2, W-2AS, W-2GU, W-2VI, and W-3SS; or Form W-3 from IRS.gov and submit to the Social Security Administration.
- Make entries with very light ink. The employer must use black ink.
- Make incorrectly sized entries. Use a 12-point Courier font.
- Fill in the money-amount boxes with dollar signs. They have been removed from Copy A since they are no longer needed.
- In section e, the employee’s name is incorrectly formatted. All must fill in the first box with the employee’s first and middle initials, the second box with their surname, and the third box with their suffix (such as “Jr.”)
- Enter the incorrect (EIN) or the employee’s SSN for the EIN.
Unique W-2 form about a deceased employee.
If an employee dies during the year, it is necessary to report accrued wages, vacation pay, and other compensation paid after death.
Also, include the salaries available to the employee when he was alive, regardless of whether they were actually in the employee’s possession, and any other regular wage payments, even though you may have to reassign the salary to the beneficiary.
Suppose you made the payment after the employee died but in the same year. In that case, you must withhold taxes for Social Security and report the payment on the employee’s Form W-2 only as Social Security wages to ensure the proper receipt of the Social Security credit.
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What liability does the law provide?
Employers are responsible for ensuring that W-2 forms are provided to employees and that W-2 and W-3 forms are correctly and timely filed with SSA.
The IRS strongly recommends that the employer’s address, not the address of a third party, be an address registered with the IRS. It ensures that you will be up-to-date on tax issues related to your business because the IRS will contact you at your employer’s official address if there are any problems with the report.
If you forget to file a correct Form W-2 by the due date without any reasonable grounds, you will be subject to a fine. The amount of the penalty depends on the period of delinquency.
A $110 fine for a Form W-2 will be assessed if you correctly file more than thirty days after the deadline but before August 1.
If the W-2 form is filed after August 1 or not filed, the penalty will be $290 per report.
All penalty amounts apply to documents filed after 12/31/2022.
There are exceptions. The liability will not apply if you can show reasonable cause for not complying with your duty, and it is not willful neglect.
You must show that an event beyond your control caused your inactivity or there are significant mitigating factors. You must also show that you acted responsibly and took all possible steps to file the report on time.