Did you know that employers can face penalties if they fail to provide W-2s to their employees or file them late? Ensuring workers (and the Social Security Administration) receive W-2s on time — and without errors — can go a long way toward avoiding unwanted attention from Uncle Sam. But what happens if something falls through the cracks? It’s important to understand the penalties when W-2s are completed incorrectly or filed after the deadline.
In this business owner’s guide, we’ll cover the common reasons the IRS assesses fees, what the penalties are, and ways to avoid fees altogether.
What are the penalties for failure to file Form W-2?
Generally, the IRS assesses penalties when employers:
- Fail to send their employees a completed W-2 on or before the January 31 deadline
- Do not file a W-2 and W3 with the Social Security Administration by the annual January 31 deadline
To keep the facts straight, we asked Romeo Razi, a CPA, owner of TaxedRight, and former IRS revenue agent who has more than a dozen years of tax experience, to weigh in. “W-2 penalties are based on two things: (1) how many are late and (2) how late do you file them.”
Penalties are also likely should the IRS, or a company’s employees, receive a W-2 that contains errors or incorrect information. The IRS assesses fines per W-2, which means that if you have a large number of employees on your payroll, penalties can quickly add up. So, If you accidentally forget to file a W-2 by the January 31 deadline, Razi says the first step is to “file the missing W-2 immediately.”
Additionally, he says there will be more documents to double-check. “You will need to file an amended Form amended Form W-3 (which is the total of all your W-2s), and possibly amended 941s (quarterly wage reports), since the numbers on all three forms should all match – to the penny.”
With that out of the way, let’s review the penalties for filing late.
What are the late filing penalties for W-2?
Penalties range from $50 to $580 per form for 2022 and are usually based on when the correct Form W-2 is filed after the missed deadline. In other words, there are specific dates business owners must be aware of. The following penalties apply to the 2022 tax year.
- If you miss the January 31 deadline but can still get forms filed within 30 days of the due date, penalties start at $50 per W-2
- The stakes rise as August 1 approaches. That’s because if you file 30 days after the January 31 deadline or before August 1, fees increase to $110 for each information return or payee statement.
- Should you file on or after August 1, fees start getting more serious and are $290 per W-2.
- Last but not least — literally — are the charges for intentional disregard, which is a fancy way of saying that filing is being ignored. At this point, fees are $580 per W-2.
This can be a lot of numbers to juggle, so below is a table to get a better sense of the timeline and fees from the last couple of years.
|Tax year||How late is the W-2?||Minimum penalties||Maximum penalties for small businesses*|
|2022 penalty amounts||30 days late or less||$50 per return||$206,000 max for small businesses or $588,500 per year|
|31 days late through August 1||$110 per return||$588,500 max for small businesses or $1,766,000 per year|
|Filing After August 1||$290 per return||$1,177,500 max for small businesses or $3,532,500 per year|
|Intentionally not filing||$580 per return||No maximum limit|
|2023 penalty amounts||30 days late or less||$60 per return||$220,500 max for small businesses or $630,500|
|31 days late through August 1||$120 per return||$630,500 max for small businesses or $1,891,500 per year|
|Filing After August 1||$310 per return||$1,261,000 for small businesses or $3,783,000 per year|
|Intentionally not filing||$630 per return||No maximum limit|
*In the eyes of the IRS, you’re considered a small business if your average annual gross receipts for the three most recent tax years (or for the period that you were in existence, if shorter) ending before the calendar year in which the Forms W-2 were due are $5 million or less.
Also, later this year, tax penalties will adjust due to inflation which is why you see higher amounts for the 2023 tax year.
We talked about the most common reasons why employers may face W-2-related penalties, so let’s talk a little about the other reasons why fees crop up.
Expert perspective on W-2 penalties
“The IRS collects most of their tax dollars through W-2s and payroll. To them payroll taxes and W-2s are the “sacred cow.” It is the one area of the tax code that they are the least forgiving about and hand out the most penalties. It pays to plans so you don’t get caught in the IRS line of fire by filing your W-2s late.”
— Romeo Razi, CPA and former IRS revenue agent
Other reasons for W-2 penalties
Beyond the most common reasons mentioned at the beginning of this article, there are other issues the IRS may flag after receiving files.
- In addition to adding the wrong information, there can be penalties if you forget to include all information
- Using paper forms when you’re required to e-file or file electronically
- Reporting an incorrect tax identification number (TIN)
- Forgetting to add the TIN altogether on a form
- Failing to file paper Forms W-2 that can be read by a machine
If you’re wondering if it’s possible to make amends after an oversight, sometimes there are exceptions. For example, can you demonstrate that the late filing was due to reasonable cause, rather than willfully ignoring the rules? (This would include events beyond your control.) Or can you show that you did everything possible and took action to meet the deadline? These are among the exceptions the government may consider.
Do states charge penalties if an employer fails to file a W-2?
In addition to filing with the federal government, some states require employers to file W-2s, and it’s a good idea to understand the rules (or potential late fees) that apply where you do business. For example, in Georgia, fees range from $10 to $50 per W-2 depending upon how late they’re filed with the Department of Revenue. In Illinois, the fees are different, starting at $5 per late W-2 and it’s only acceptable to file electronically with the Illinois Department of Revenue.
Because fees vary from state-to-state, it makes sense to reach out to the resources available where you do business to find out what your obligations are.
Next, let’s talk about how to avoid penalties altogether.
How to avoid penalties for not filing form W-2 on time
There are various ways to avoid any punitive peril if you’re retaining payroll records. Employers should make sure they have the most accurate and most up-to-date information for each employee, including their:
- Social security number
In addition, always be sure to check that the amounts reported on W-2 forms match the amounts you’ve already reported to the IRS. Also, remember that if you have 250 employees or more, paper filing is not an option and you need to file electronically.
Can I avoid penalties with a file extension?
Form 8809 (also known as the Application for Extension of Time to File Information Returns) is what you would use to request an extension for late filing. While you are able to request a file extension using this form, there’s no guarantee the IRS will grant it. Razi agrees that this is the step to take. “If you’re running behind running your W-2s, you can ask the IRS for an extension to file them late by using Form 8809,” he says. “However, you must have a special circumstance as to why you’re asking for an extension.”
While some data suggests that small business owners work twice as much as regular employees, unfortunately, having a lot on your plate is not on the list of reasons why someone may be able to file late. Again, we tapped Razi for his insights. “To qualify for a W-2 extension, there are some different circumstances that may apply.” While he says there’s no guarantees on extensions being granted, some criteria the IRS may consider for late filers include:
- The business suffering a catastrophic event
- It’s your first year in business
- There was a disaster that affected business operations
- There was a serious illness or death regarding the person who files the returns normally
If one of these issues applies, there’s a chance you may be eligible for an extension, but again you would need to complete Form 8809, and then the decision lies with the IRS.
To avoid penalties for entering incorrect information on a W-2 (or missing the deadline), basic organization and documentation can go a long way. Whether you are an employer that’s been in business for a couple of years (or just getting ready to open the doors), having a basic understanding of how penalties work and the ways to avoid them can help you prepare before tax time rolls around.
Also, keep in mind that most companies that provide small business payroll software make filing W-2’s a simpler process (so there’s one less thing to worry about).
Good luck as you grow your business and stay one step ahead of your tax paperwork!
This article is provided for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for formal consultation.