IRS Form W-2: Purpose & Filing Instructions

Key Takeaways

• W-2s allow the IRS to track your employees’ income, taxes withheld, social security wages, taxable benefits, and more to help determine income taxes payable.
• The deadline for Form W-2 is January 31^st, but you can apply for an extension for 30 days. 
• If you have over 10 employees, you must file their W-2s online unless your application for a waiver is approved. 

What is Form W-2?

As an employer, you complete this federal statement that details their wages and the taxes you withheld from your employees’ paychecks so they can do their income taxes. 

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The Social Security Administration encourages online submission for every company and requires you to submit your employees’ W-2s online if you have more than ten (employees or forms.) For fewer employees, you can print the form, complete it, and send it in by mail. 

Use the free filing options from the SSA on your Business Services Online account. Simply register and create a password so you can securely and conveniently submit information to Social Security online. 

How to Complete a W-2 for Employees

Fill in the information requested in each box. Check the letter, number, or combination to make sure you put the correct details in the proper places. 

Boxes With Letters – Identification Details

• Box a – Everything with the IRS starts with a Social Security Number. Use the SSN Verification Service to verify new employees’ names and SSNs for reporting purposes up to ten at a time for immediate results. If you need to verify everyone on your payroll, you can upload up to 250,000 at once, but it takes a business day to see the results. 
• Box b – Your EIN. If you don’t have one yet, you can apply online and get one right away. 
• Box c – Your company’s name and address. Be sure to include your zip code. 
• Box d – This box is for your company’s internal use. If your payroll system uses a control number to identify W-2s, add it here. If not, leave Box d blank. If you get an error when completing the forms online, fill in the box with any number with 10 digits, with a space in the middle. For example, 00701 00702 works fine. 
• Box e – Employee’s name – Add their legal first name in the first box in this section, even if this isn’t what they go by. Add their middle initial right beside their first name in the same box. Then, add their last name in the next box. The box labeled “Suff” is for something like Sr, Jr, II, or anything else that might be on the employee’s Soc. Sec. card. But it’s better if you just leave that blank since the SSA prefers you don’t add that. 
• Box f – Employee’s address and ZIP code. You may want to ask employees to update their addresses around the end of each year so you’re always working with current records.

Boxes With Numbers

• Box 1 – The employee needs to pay Federal income tax on these earnings, usually based on the calendar year. Include taxable benefits, even if they aren’t paid in cash. Subtract any pre-tax deductions, like retirement contributions, medical, and dental insurance amounts. You’ll also need to deduct wages reported on Form 1042-S for non-residents. 
• Box 2 – This is the federal income tax your company withheld from the employee’s paychecks. It should agree with their pay statements.
• Box 3 – Usually, you can calculate Social Security wages like Box 1, Federal wages unless tax-deferred or Retirement Savings contributions require payment upfront of Medicare and Social Security taxes. Once wages reach the Social Security limit, fill this box with the top amount on the Social Security Administration website. If your employee enrolled in credit courses, the tuition may be Soc Sec tax exempt.
• Box 4 – 6.2% of the amount in Box 3.
• Box 5 – Usually, you can calculate Medicare wages like Box 1, Federal wages with the same proviso as Box 3. 
• Box 6 – 1.45% of the amount in Box 5. Plus, 0.9% for wages over $200,000 for additional Medicare.
• Box 7 – When an employee tells you they receive tips, you report that amount here for their Social Security. 
• Box 8 – This tip income you allocate, but don’t include it in other boxes.
• Box 9 – This new box has room for a 16-digit code to verify the authenticity of the form. 
• Box 10 – These are non-taxable dependent care assistance plan benefits you paid to a maximum of $5,000 on your employee’s behalf.
• Box 11 – Reports the amount you, as the employer, paid into a non-qualified deferred compensation plan. Your employee will pay tax on this amount.

Box 12 – Everything else goes here! 

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• Box 13 – Check the first box for statutory employees who pay into Social Security and Medicare but you don’t withhold federal income tax. Check the second box if the employee participated in your retirement plan. Check the third box if they received sick pay from your insurance policy.
• Box 14 – This is where you include anything that doesn’t fit anywhere else, like union dues, non-taxable income, state disability insurance taxes you withheld, or health insurance premiums you deducted from the employee’s paycheck. 
• Box 15 – Your state and your state tax ID number. Some states don’t have a reporting requirement, so leave boxes 15, 16, and 17 blank. 
• Box 16 – Taxable state income.
• Box 17 – State income taxes you withheld.
• Box 18 – Taxable local income. You may need to complete more than one W-2 if you operate in multiple locations. 
• Box 19 – Local income taxes you withheld. 
• Box 20 – The name of the location for the tax in Box 19.

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How to Make Corrections to a W-2

Mistakes happen. Sometimes, employees change their addresses, or you discover a bookkeeping error that means you need to make corrections to a previously submitted W-2. 

A corrected W-2 is aptly named a W-2c, which you’ll complete, send to the SSA, and give your employee a copy. At the same time, always complete and submit Form W-3c to the SSA. 

If the error was big enough to require changes to more than 250 W-2s, you’ll need to file the W-2cs and the W-3cs online. Otherwise, you can make the changes on paper forms (if you want!)

How Long to Keep Your Employees’ W-2s

W-2s are not unique documents as far as the IRS and SSA are concerned, so you’ll need to keep them for at least 4 years, like your other business records. The government could ask to review your documentation at any time. 

What Happens if You File Late – W-2 Penalties

Is it a big deal if you don’t get around to filing your employees’ W-2s on time? Well, you’ll face penalties for the 2023 tax year that start at $60 EACH! Maybe no big deal if you only have one employee and their W-2 is filed in February. 

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Penalties go up to $120 EACH until August 1^st and go up to $310 each after that. 

And if it’s determined that you are “intentionally disregarding” (ignoring!) the need to file, fees start at $630 EACH and there’s no upper limit!

So, get those W-2s in before the end of January, and you’ll have less to worry about. 

In Conclusion

The IRS Form W-2 is a staple in our income tax world. Your employees need them to do their taxes for April 15^th, so you need to complete and submit them by January 31^st. 

If you need more information or have questions about completing or correcting your employees’ W-2s, reach out to our experts. We’re here to help! 

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