What Is A W-2 Form And Who Needs One?
By Jaden Miller , January 20 2020
As the calendar turns to January, there’s no doubt that you’re thinking about growth for the new year. Yet, you still have to look back at the last year as it also signals the beginning of tax season. You should be creating your forms and getting your documents together. One of the forms that you’re going to need is a W-2 form. It’s a strange, rectangular form that contains valuable information for you and your employees.
What is a W-2? Keep reading to find out.
What Is A W-2 Form?
When it comes to taxes, there is a form for everything. One of those forms is used to calculate the amount of money an employee made during the year, along with how much money was withheld for taxes, Social Security, Medicare, health savings accounts and retirement plans. That form is the W-2 Wage and Tax Statement. Think of it as the total of all of the payroll stubs you created for an employee during the year.
Employees need that form to send to the IRS when they file their taxes. The information on that form will tell employees if they will get a tax refund or if they owe the IRS money. As an employer, it’s your responsibility to give employees their W-2 forms by the end of January. You may not have to create a W-2 Form for every employee, just those who made $600 or more during the year.
What if you had contractors in addition to employees? Contractors do not get a W-2 form since you don’t withhold taxes for them. Instead, contractors who made more than $600 will get a 1099-MISC.
A Brief History Of The W-2 Form
Before the 1940s, people would pay their taxes in one lump sum in April. There wasn’t a program in place to withhold taxes so the U.S. Treasury would be flush with cash every April and make that money last until the following year. When the U.S. get involved in World War II, the government needed to have income throughout the year to support the war effort.
Taxpayers were also responsible for paying a large sum of money to the government every year, which most people didn’t really like. In fact, only a small percentage of people actually paid their taxes. In 1943, Congress passed the Current Tax Payment Act. That is what established the payroll tax system we know of today. It allows the government to remain fully funded during the year, and employees to pay their tax responsibilities during the year.
This same law also made it a requirement for businesses to generate W-2 forms for their employees.
Your W-2 Responsibilities
It is a law to create a W-2 form for your employees. When you create W-2 forms, you have to make three copies. One copy is sent to each employee. One is sent to the IRS. The third copy is sent to the Social Security Administration. All forms must be submitted by January 31 every year for the previous year. For the year ending December 31, 2019, the forms need to be submitted by January 31, 2020.
Click here to create your Form W2
If you do not file these forms on time, the IRS is likely to penalize you. If you can’t get the forms done on time, then you need to file for a 30-day extension as soon as possible. The IRS and Social Security Administration will reconcile these forms with the quarterly payroll tax reports to ensure They may reconcile these forms with the information your employees submit to the IRS when they file their taxes.
Accuracy is incredibly important because any sort of discrepancy could raise a red flag and trigger an audit. It might even result in a fine if it’s a big error. In other words, make sure your decimal points are exactly where they should be.
How To Fill Out The W-2 Form
How do you fill out a W-2 form? You can fill out your W-2 form online using a W-2 form generator. That makes it much easier for you and reduces the chances of making a major mistake on these forms. When you look at the form, you’ll see nothing but boxes. Here’s what you need to enter in each box.
Box a: Your employee’s social security number.
Box b: Your business EIN (employer identification number). This is the number is given to you by the IRS.
Box c: Your business name and address.
Box d: Control number is a box that you can skip. This is used by payroll departments to internally identify a W-2 form.
Box e: The name of the employee.
Box f: Your employee’s address.
Wages And Withholdings
Box 1: This is the total amount of earnings, bonuses, and tips paid to an employee during the year.
Box 2: How much federal tax you withheld from their checks for the year.
Box 3: The amount of earnings that can be taxed 6.2% for Social Security. This is maxed out at $113,000.
Box 4: The amount of social security taxes withheld.
Box 5: The amount of earnings that can be taxed for Medicare. (should be the same as box 3).
Box 6: 1.45% of earnings withheld for Medicare.
Additional Earnings and Withholdings
Box 7: The amount of earnings the employee reported to you in tips.
Box 8: Usually applies to food and beverage companies, which shows the tips allocated. This amount is separate from Boxes 1, 3, 5, and 7.
Box 9: This isn’t usually filled out unless you’re e-filing.
Box 10: Did you pay for child care or other similar benefits for the employee? That gets entered here.
Box 11: If there were any taxable distributions, they need to be noted here.
Box 12: This is for any additional benefits, such as a 401(k) plan contributions.
Box 13: You simply check the boxes that list what your employees were participating in.
Box 14: This is a catch-all box that covers any other deductions that the previous boxes didn't cover.
The remaining boxes are for state and local taxes. If you're in a state with no income tax, you don't really have to worry about it.
Start Filling Out Your W-2 forms
So, what is a W-2 form? When you look at a W-2 form, it can seem pretty intimidating. If you have all of the documentation, you need and a good system to fill out the forms, they’re actually pretty easy to do. Just make sure that they’re accurate. Otherwise, you could get in trouble with the IRS. Are you ready to get ahead of tax deadlines? Create your W-2 form in minutes!