What You Need to Know About the W-2
and Other Information Reporting
The W-2 is an IRS information return used to report an employee’s wages, tips and other compensation. Officially known as the Wage and Tax Statement, it also captures the withholding for various taxes, such as income, Social Security and Medicare.
The worker’s status and the nature of his or her relationship to your business dictate which information reporting form you send. The 1099-MISC applies to independent contractors, while the W-2 captures wages and other important information for employees.
A W-2 is a requirement for all employees, regardless of the amount of time they worked for your company or the duration of their employment. A W-2 includes information about wages, tips and any other compensation for the job. Withheld taxes are also recorded on a W-2, including income tax, Social Security withholdings and Medicare contributions.
All W-2 forms need a valid Social Security number. Be aware, too, that individual states may have other requirements for reporting employee earnings that differ from the federal government.
The IRS tells business owners and managers, “If the Social Security Administration (SSA) issues the employee an updated card after a name change, or a new card with a different Social Security number (SSN), file a Form W-2C to correct the name/SSN reported for the most recently filed Form W-2.”
The Foreign Person’s U.S. Source Income Subject to Withholding is the long-form name for the 1042-S. Essentially, this form is used to report the amount paid to foreign person(s) where withholding rules apply. This is also necessary for individuals who are perceived to be, but are unconfirmed as, a foreign person. A 1042-S should be filed even if other tax codes consider the amount an exception, no amount of money was actually withheld from the income paid to the foreign person or the amount was paid back by the recipient.
The W-2 is a multi-part form. Here are the parts of the form and where to send each part:
- Copy A — File with the SSA by the paper or electronic-filing deadline.
- Copy 1 — File with the appropriate state, city or local taxing authorities, if applicable. You should contact your state, city or local tax department for filing requirements.
- Copy B — Distribute this copy to employees, who then file it with their federal income tax return. Generally, it must be delivered by January 31. You will meet the IRS’ distribution requirement if the form is properly addressed and mailed on or before this due date.
- Copy C — Distribute this copy to employees, who then keep if for their records. Again, it generally must be delivered to employees by January 31.
- Copy 2 — Distribute this copy to employees, if applicable. Employees will then file this copy with their state, city or local taxing authority. Again, it generally must be delivered to employees by January 31.
- Copy D — Retain this copy for your records.
You may request an extension of time to file your W-2s with the SSA; however, you must request the extension before the due date. Even if you request an extension, you must still furnish W-2s to employees by January 31. (There are limited exceptions when the SSA may grant an extension.)
If you don’t file the correct W-2s by the due date, and can’t show reasonable cause, you may be subject to a penalty.
Remember: If you file 250 or more W-2s, you must file them electronically under IRS requirements. If you file electronically, you don’t have to file the same returns on paper.
Common Errors with the W-2
Avoid making the following errors, which can cause processing delays.
- Omit the decimal point and cents from entries
- Use ink that is too light to make entries — only use black ink
- Make entries that are too small or too large — use 12-pt. Courier font, if possible
- Add dollar signs to the money-amount boxes
- Inappropriately check the “retirement plan” checkbox in box 13
- Misformat the employee’s name in box e — you must enter the employee’s first name and middle initial in the first box, his or her last name in the second box, and his or her suffix (optional) in the third box
W-2 Do’s and Don’ts
- DO also file Form W-3 with Copy A of your paper-filed W-2s with the SSA.
- DO NOT staple or tape W-2s to each other. Since these forms are machine read by the SSA, staple holes or tears can interfere with the reading.
- DO keep Copy D of the W-2 (and Form W-3, if applicable) for four years.
- DO NOT send cash, checks, money orders, etc. with the W-2s you submit to the SSA.
- DO file W-2s either alphabetically by employees’ last names or numerically by employees’ Social Security numbers.
- DO NOT use W-2s that don’t comply with IRS standards or are not machine-readable. Use either official IRS forms or privately printed substitute forms that adhere to all specifications.
- DO make sure the W-2s you provide to employees are clear and legible.