Managing payroll is one of the key responsibilities of operating a compliant and productive business. Each year, payroll managers are tasked with documenting the correct income paid out to employees and taxes withheld. To do this in the United States, they must use special forms provided to them by the United States government. One such form is the W-2 form (also called a W2 form).
Here we explain what a W-2 form is and how to ensure full compliance in the US.
What is a W-2 Form?
The W-2 form, also referred to as the Wage and Tax Statement, is a document that U.S. employers must file annually with the Internal Revenue Service (IRS). A copy must also be furnished to employees. A W-2 is used for reporting of any cash or non-cash payments and contributions over $600, payroll taxes (Social Security and Medicare) federal and state income taxes withheld from the previous tax year. The completed W-2 can be generated from information supplied by employees via a W-4 form, as well as internal payroll records or by the use of a third-party payroll provider. It is important that both employers and employees comply with the requirements of the W-2 form to avoid certain financial and legal penalties.
Where to Find a W-2 Form
A blank W-2 form can be found on the IRS website. The IRS also provides W-2 forms upon request by mail or email. It can be generated using the payroll application at your organization. It can also be provided by a third-party payroll service.
How to Complete a W-2 Form
It is very important to understand how to complete a W-2 form. This includes where to find the information that must be present on the W-2 form in order to file it with the IRS, how to make changes, and the use of third-party payroll services.
It’s important to note, the IRS requires that a completed W-2 form must be machine readable. For organizations with less than ten employees, paper forms can be mailed to the IRS, so long as they are clear and legible. For organizations that have ten or more employees, this means paper forms must be clear and legible, scanned and converted to a PDF before submitting, or a digital PDF fillable form may be used. Employers may send employees their copy of the completed W-2 in digital or paper format.
1. Information that Must be Included on the W-2
Most of the information that must be completed on the W-2 form can be found on the Employee Withholding Certificate (W-4) that is completed during the new hire of an employee. Other information comes directly from employer records.
The W-2 form must include the following information in order to be accepted by the IRS, as indicated by the section numbers on the example here.
Employer and Employee Identification
- The Employee’s Social Security Number
- The Employer’s Identification Number (EIN)
- The Employer’s name, address and zip code
- If there is an internal control number (employee record number)
- Employee’s first and last name
- Employee’s address and zip code (input above below employee name)
Wages and Taxes
- Wages, tips and other compensation
- Federal income tax withheld
- Social Security wages (total before taxes)
- Social Security tax withheld
- Medicare wages and tips (total before taxes)
- Medicare tax withheld
- Social Security tips (if any)
- Allocated tips (if any)
- Advance Earned Income Credit payments (EIC)
- Dependent Care benefits
- Non-qualified plans (retirement plans not covered under ERISA)
- These are sections for non-taxable savings and employer contributions
- Check the category for the employee, then document in section 12
- Other – post information about any taxable or non-taxable income here.
- State and the Employer’s state ID number
- State wages, tips, etc.
- State income tax withheld
- Local wages, tips, etc.
- Local income tax (if the county or city assesses additional income tax)
- Locality name (County or City)
Example of a W-2 we have filled in for educational purposes:
2. Making Changes and Correcting Errors
Despite the need for accuracy when completing and filing the W-2 form, sometimes errors or updates can occur. Fortunately, it is possible to request changes and correct errors. The IRS has a simple process to complete this. The instructions can be found on the IRS website. Here is a brief summary of the steps to make changes and correct errors on a W-2 form.
- Correct the errors on Form W-2 by using the recommended correction form.
- Submit the W-2 form along with the corrected form to the IRS.
- Use the same method to submit the corrected W-2 as the original W-2.
- Provide the corrected form W-2 to the employee so they can update their tax records.
3. Using Third-Party Services to Complete W-2s
Companies can find it convenient to outsource the responsibility of a third-party solution to generate W-2s for employees. This can be a time saver, support compliance, and reduce mistakes, so long as the employer provides accurate information to the provider.
Requirements of the W-2 Form
Along with the required information and completion of the W-2 form, there are other requirements that employers and employees must meet.
1. Employer completes the W-2 Form
While the employee fills out the W-4 at hire, and updates tax withholdings, addresses, marital status, and more when needed. It is the employer that must complete the W-2 form and file it in accordance with government guidelines.
2. Tax deadline to file with the IRS
Deadlines are very important to understand. The employer must complete and file a W-2 for each employee with the IRS by the last day of January of the new year for the previous 12-month calendar year. For example, employers will file a W-2 form for the 2024 tax year by January 31, 2025. The IRS newsfeed announces future deadlines.
3. Send W-2 to employees
Employers are also required to send employees copies of their W-2 by the last day of January for the previous tax year. Employers may send a copy by mail or provide access to a digital format that the employees can print out. Employees need their W-2s by this deadline in order to file their income taxes.
4. Secure 2.0 Act W-2 provisions
In May of 2024, the IRS announced some changes to how employers report income on the W-2 form. Under the Secure 2.0 Act, starting with the 2023 tax year (2024 W-2 processing) employers must also report small financial incentives offered to employees for enrolling in traditional retirement plans (401k and 403k), as they are considered taxable income. Employers are also required to report contributions made to Roth SEP or Roth SIMPLE IRA as they are also considered taxable income. These items can be reported on the W-2 form section 12, using the correct code.
5. Employee reports wages to the IRS
Employees who earn income through a job must report their income to the IRS every tax season for the previous year(s) they’ve worked. They can file a form 1040 with the IRS to ensure their earnings match with the information that the employer has provided. If there are errors to the W-2, the employee is responsible for contacting the employer and requesting a corrected W-2. Employees can also contact the IRS to get help with this matter.
W-2 Form Penalties
The IRS imposes certain penalties for W-2 form non-compliance. The IRS will assess late-fees to employees who fail to provide an accurate W-2 form to the IRS by the deadline. So too, employers must provide W-2 forms to employees by the yearly deadline and promptly correct any mistakes. Employees are responsible for reporting accurate income and other information on their W-2 forms to the IRS by the tax season deadline (generally on or about the 15th of April). Failure to do so will result in late-fees and rejected tax returns. Intentionally altering or completing the W-2 form with inaccurate information can result in more penalties, audits, and possible legal repercussions.
Ensure W-2 Compliance with Horizons
The W-2 form is one of many forms that employers are responsible for managing in order to accurately report taxable income, prevent fraud, and remain in compliance with federal and state tax laws.
For advice on how to guarantee W-2 compliance, get in touch with our US hiring specialists, who can help you with all aspects of employment compliance.
