IRS requires all employers to submit this form for each and every employee that they remunerate for over $600 in a single year. In it, they report all the income their employee earned with Social Security, Medicare (health insurance), and income tax withheld. Form W-2 is used for reporting income and tax only for regular employees. When submitting income for an independent contractor, the employer will need to use a different form (W-9 or W-8BEN). The Form W-2, as well as any other wage tax report for the tax year of 2020, must be filed with the Social Security Administration by January 31, 2021.
What is IRS Form W-2?
Form W-2 is an annual wage and tax statement used to report your taxable income earned from an employer. The employer sends two copies of this form each tax year: one to the employee and one to the IRS. The Form W-2 shows the employee's total taxable wages, which means the total wage minus any pretax deductions.
Form W-2G is the form a person receives from a gaming institution and it is used to report the gambling winnings for tax purposes. As the original form, this one is used to report the income (in this case - winnings) as well as the amount of taxes withheld on it.
The employer can use this form to make corrections to previously issued Forms W-2, whether they were issued this or any previous year. Form W-2c is used to correct wages with the IRS, FTB, and the Social security Administration (SSA).
What is Form W-2 used for?
Form W-2 is a tax form that is used to report wages paid to employees and the taxes withheld from those wages. Employers complete and file the Form W-2 for each person that is in an employment relationship and on their payroll. Form W-2 is used to report wages of employees and statutory employees. This means that an employer cannot utilize this form to report payroll tax for independent contractors or freelancers providing services. In these cases, the IRS Form 1099-NEC is used.
ATTENTION: Do not confuse the Form W-2 with the Form W-4 which is used by employees to tell their employers how much tax they should withhold from each paycheck or pay period.
What information does a Form W-2 Include?
Form W-2 includes all the relevant tax information from both the employee and the employer.
- Employer Identification Number
- State ID number
- Social Security Number
Keep in mind that there isn’t any information about the bank account number or savings plans.
We will go through each box in the form in detail in a later section of this article, so, if this didn’t fully answer your question, just keep reading.
Who needs Form W-2?
A lot of parties need the Form W-2 correctly filled out and submitted. Apart from the IRS and the SSA who will use it to determine an employee's tax payment requirement, both employers and employees should be familiar with this form.
As an employee, you still need the W-2 form, even though you don’t need to submit it. Make sure you keep it safe, along with your other tax documents, such as income tax returns. This form is also crucial for getting the right tax refund and knowing how much to get.
Statutory employees are independent contractors that are treated as regular employees for the purposes of tax withholding and tax liability. They also need to be familiar with the Form W-2.
If you are an employer using employer of record services to hire workers on behalf of you, you won't need to submit any forms as the EOR will do it for you.
If you are a freelancer, an independent contractor, or self-employed, you don't need this form. You should receive Form 1099-NEC from your client instead.
Finally, you should keep in mind that taxpayers should report all income they make in a tax year, regardless of whether it is on the Form W-2. The Form W-2 shows income tax withholding from only one source (employer), but all sources of income should be reported on your taxes.
When to file Form W-2?
The Form W-2 must be submitted by January 31 the following year, for the previous year. For example, an employer should file a W-2, with the proper authorities, by January 31, 2021, for the prior year - 2020.
What happens if you miss the deadline to file Form W-2?
Ideally, no one would miss the deadline for something as important as taxes. Unfortunately, accidents still happen and there are unforeseen circumstances that can affect your time, and by extension your ability to file the proper tax forms at the proper time. If you miss the deadline for Form W-2, the following penalties will ensue:
- $50 per form if filed within 30 days of the deadline with a maximum of $187,500;
- $100 dollar per form if filed before August 1, but later than 30 days from the deadline (with a maximum of $536,000);
- $260 per form, and up to $1,072,500 per year for forms filed after August 1.
How to file Form W-2?
Filing the Form W-2 correctly is as important as filing it on time. If there are any mistakes on the form, you will need to send a corrected copy (Form W-2c).
Filing Form W-2 online
The employer is required to file the Form W-2 electronically if they are submitting forms for more than 250 employees. The limit will drop to 100 for the tax year 2021, and for any following year, the employer will be required to submit your W-2s online if they need to submit 10 or more forms. Filing the forms online is pretty easy and only requires registration with the SSA online. Additionally, it is much faster to file the forms electronically than by mail.
Filing Form W-2 by mail
When filing your W-2 forms by mail, the employer must send them to the U.S. Postal Service to the Social Security Administration at Data Operations Center, Wilkes-Barre, PA 18769-0001. If any corrections must be made to already filed forms, the corrected form should be sent to Data Operations Center, P.O. Box 3333, Wilkes-Barre, PA 18767-3333 if you are using regular mail.
The address is different if filing the W-2 at the last minute and require a courier service (UPS or FedEx) to deliver it: Data Operations Center, ATTN: W-2 Process, 1150 E. Mountain Drive, Wilkes-Barre, PA 18702-7997.
As Form W-2 is a multipart form there will be different copies that should be filed with the proper channels:
- Copy A should go to SSA
- Copy 1 is for the city, state, or local governing body
- Copy B should be filed with the employee's federal tax return
- Copy C is for the employee
- Copy 2 is a duplicate copy for a city, state, or locality
- Copy D is for the employer's records
What does each Form W-2 box mean?
Whether you are looking to fill out the W-2 or to double-check whether everything is alright with the one filled out by your employer, you will need to understand the information in each box.
Box 1: Shows the amount the employee was paid in wages, tips, or other forms of compensation.
Box 2: Details how much federal income tax the employer withheld from the employee's pay.
Box 3: Shows employee's Social Security Wages. This is what part of the pay is subject to Social Security tax.
Box 4: This details how much Social Security tax was withheld from employee's pay.
Box 5: This shows how much of the employee's pay (Box 1) is subject to Medicare tax.
Box 6: This gives information about how much Medicare tax the employer withheld from employee's pay.
Box 7: This shows the amount of tip income the employee reported to the employer (this information is included in Box 1) that is subject to Social Security tax.
Box 8: This shows how much allocated tips the employer allocated to the employee. This isn't included in Box 1.
Box 9: This was once used to report advance on Earned Income Credit, but starting with tax reporting in 2010, this box should be left empty.
Box 10: This details how much dependent care benefits the employer paid to the employee or incurred on their behalf. The amount will depend on the marital status of the employee and whether they are filing the Form W-2 together with their spouse or separately. Additionally, the employee must complete Form 2441, Child and Dependent Care Expenses to see whether they can exclude the amount from their income.
Box 11: This shows how much money was given to the employee during the tax year from the employer's deferred compensation plan.
Box 12: This is used by the employer to provide more details about a part (or entirety) of the employee's pay reported in Box 1. There are four areas in Box 12 allocated for this. For example, if the employee has contributed to the company's 401(k) plan, the amount they contributed will appear under the code letter “D”. If you would like to become acquainted with other code letters, you should look up the Internal Revenue Service guide to Forms W-2 and W-3.
Box 13: This box shows if the employee's earnings are subject to Social Security and Medicare taxes but aren’t subject to other tax withholding (such as federal tax) and whether they participated in any types of retirement plans, or whether they got certain types of sick pay.
Box 14: This box allows the employer to report any other additional tax information that may not fit in any of the other sections on the form. A few examples are the amount withheld on state disability insurance taxes or union dues.
Box 15: This shows the employer’s state ID number.
Boxes 16-20: These boxes show how much of the employee's pay is subject to local and/or state income tax, and how much state and/or local income tax was withheld from the pay.
Boxes A through F: These boxes contain information such as the name and address of both the employee and the employer. In addition to this, these boxes will include the employer’s Tax Identification Number as well as SSN.
The one lettered box that requires special attention is Box D. This box shows the sixteen digit control numbers assigned by the employer’s payroll processing software to identify each Form W-2. The IRS doesn’t require it to process the form. However, the control number can help you automate filling out and submitting the W-2 with tax software such as Turbotax.
This article is meant to be informative and help you understand the W-2 form better. It is not a replacement for proper tax advice. If you are still not 100% sure what the W-2 tax form is used for or how it works, after reading this article, you should request the help of an accountant or another tax professional.
IRS Form W-2 key takeaways
- The submission deadline is January 31 of the following year
- Employers use the Form W-2 form to report the Federal Insurance Contributions Act (FICA) taxes for their employees or statutory employees.
- The IRS uses Forms W-2 to track the employee's tax obligation.
- Income, Social Security, or Medicare tax was withheld.
- Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee's Withholding Allowance Certificate.
- Filing the form online is much easier and faster than filing by mail
- If unsure about anything, get advice from a tax professional
Disclaimer: This article is to be used for informational purposes only and should by no means be considered as tax advice. Always check the official IRS website (irs.gov) for the latest information, or seek advice from a tax professional.