What Employers Need to Know About W-2s and W-3s
The January 31, 2019 deadline for employers to file Forms W-2 and W-3 is right around the corner. Special due dates apply if you have terminated your business. Filing late might expose your company to penalties (IRS).
Luckily, if you partner with a Professional Employer Organization (PEO) such as Resourcing Edge, you don’t have to worry about things like payroll and tax management. A PEO will prepare and file all relevant tax documents on your company’s behalf. With Resourcing Edge, employees and employers can also view and reprint prior W-2s in our secure web portal.
Employees should receive their W-2s by the end of January. Freelancers (independent contractors) receive a 1099-MISC, also by the end of January.
What is a W-2?
Form W-2, known as a “Wage and Tax Statement,” is a tax form that every employer must send to each of their employees and the Social Security Administration (SSA) by January 31.
This statement spells out how much the employer paid the employee, along with how much was withheld for state and federal income tax, Social Security, and Medicare over the last financial year.
The purpose of the form is to give employees the relevant information they need to fill out their tax returns. It also provides the SSA and Internal Revenue Service (IRS) what they need to verify the employee’s tax return.
What is a W-3?
Form W-3 tells the SSA the total earnings, Social Security wages, Medicare wages, and withholdings for all employees during the tax year.
Your W-2s for each employee must include Form W-3, unless you are filing with the SSA online. If you file electronically, Form W-3 gets generated automatically and sent to the agency.
The W-3 deadline is also January 31.
When to File Forms W-2 and W-3
Before the PATH Act of 2015, employers had until the end of February to file W-2s with the SSA, a month after the requirement to send employees a copy of their W-2s by January 31. The new law requires the same deadline for both in order to reduce fraud.
Form W-2 and Form 1099-MISC must be filed with the SSA or IRS by January 31.
While you can file an extension to file Form W-2 with the SSA using Form 8809, you must still send Form W-2 to your employees by January 31.
Partner with a PEO like Resourcing Edge so you don’t have to worry about staying up-to-date with tax laws, which seemingly change by the minute.
Who Files W-2 and W-3?
You must complete and file Form W-2 for each employee if:
- You withheld any income, Social Security, or Medicare tax, regardless of the amount of wage.
- You would have needed to withhold income tax if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4.
- You paid $600 or more in wages even if you did not withhold any income, social security, or Medicare tax.
Any employer who has paid $600 or more to one or more employees for the previous tax year must file Forms W-2 and W-3. There are very limited circumstances when an employer will not have to file Forms W-2 and W-3.
Even employers with just one employee, say a household employee, are required to file Forms W-2 and W-3.
It’s a good idea to give employees their W-2s early so you can find and fix errors before filing with the SSA, especially now that the deadline is the same for both.
How to Read Your W-2
Box 1: Wages, tips, and other compensation – The total taxable income for the year, unless you worked less than a year, in which case it will start from your first day on the job.
Box 2: Federal income tax withheld – The tax withheld by the employer for federal income taxes.
Box 3: Social security wages – This is the amount of income subject to Social Security/FICA tax. Unlike federal income tax, there is a maximum amount of earning on which the tax will be collected.
Box 4: Social security tax withheld – This is the total Social Security tax withheld. There is a maximum amount because of the cap on social security wages.
Box 5: Medicare wages and tips – The amount that can be taxed for Medicare. Unlike Social Security, there is no wage limit.
Box 6: Medicare tax withheld – The tax withheld for Medicare.
Most of the other boxes correspond to a letter code or deal with other types of income.
You can find instructions for each box in the General Instructions for Forms W-2 and W-3.
Sending and Retaining W-2s
There are multiple copies of Form W-2 that you should know about:
- Copy A gets sent to the SSA. This is the copy you must send to the SSA by January 31. If you file a paper copy, make sure the paper that it is printed on is machine readable by the SSA. You must get the official forms for paper filing.
- Copy 1 gets sent to the city, state, or locality (if required).
- Copy B is for the employee to file with their federal tax return.
- Copy C is for the employee’s records.
- Copy 2 is another copy for the city, state, or locality (for employee).
- Copy D is for the employer’s records.
All copies should be on IRS official forms or on acceptable substitute forms. Employers can file Form W-2 electronically. In fact, if you file 250 or more W-2s, you must file electronically (SSA).
Employees receive W-2s electronically, by mail, or both. The electronic and paper copies are identical, and both can be used to file taxes.
Make sure you keep the employer copy (Copy D) of Form(s) W-2 and a copy of Form W-3 for four (4) years. Copies B, C, and 2 of Form W-2 get sent to your employees by January 31. You may be required to send Copy 1 to your state, city, or local tax department.
Any W-2s that get sent back to you as “undeliverable” should also be kept for four (4) years. Do not send undeliverable W-2s to the IRS or SSA.
When you partner with a PEO like Resourcing Edge, you don’t have to worry about sending and retaining W-2s. At Resourcing Edge, we process, distribute and retain electronic copies of W-2s for at least four (4) years. In addition, we can send electronic copies securely to employees when needed.
You can find more information on Form W-2 on the IRS website.
W-2s and Social Security Numbers
Employees are required to provide a valid social security number (SSN) on Form W-2. Employer identification numbers (EIN) and individual tax identification numbers (ITIN) are not acceptable.
Exceptions are made for ITINs only for resident and nonresident aliens who are not eligible for U.S. employment and need identification for other tax purposes (IRS).
W-2s and Terminated Employees
W-2s for terminated employees can be provided at any time between the date of termination and the normal W-2 deadline of January 31.
If the terminated employee requests their W-2, you must provide them with Copies B, C, and 2 of Form W-2 within 30 days of the request or of the final wage payment (whichever is later).
What to Tell Employees About W-2s
You must send each of your employees their W-2 by the end of January. One easy way to distribute W-2s to employees is through a secure HR software system.
Resourcing Edge has a convenient portal for employers and employees to view and reprint W-2s. It’s as simple as a click of a button to distribute the W-2 to your employee.
Keep in mind that employees have the right to request a paper copy of their W-2. You will need a verified address on file for each employee. Resourcing Edge’s online portal keeps correct information on all employees to reduce the risk of W-2s getting lost in the mail and reducing the amount of time processing requests.
How HR Information Systems Can Help Employers and Employees
The best way to prepare Forms W-2 and 1099-MISC properly and on-time is by using a Professional Employer Organization like Resourcing Edge. As the employer of record, the PEO is responsible for things like payroll and tax administration as well as workers’ compensation, benefits. Your company and the PEO act as co-employers, allowing the PEO to take care of everything outlined in the written PEO arrangement.
You can remain confident that all your tax forms will be filed properly and on time. All errors will be found and fixed before filing. The PEO takes full responsibility.
Resourcing Edge provides added assurance as it is one of the first PEOs to be IRS Certified, which means clients have less liability, more protection, and greater peace of mind. For example, as a CPEO, Resourcing Edge assumes sole liability for the collection and remission of federal payroll taxes for the worksite employee wages our clients report to us.
Contact Resourcing Edge for more information about the CPEO services we provide. Our Payroll and HR experts take care of the burden of payroll and tax management, including annual W-2 preparation and distribution.