Updated January 13, 2021
If you’ve paid an employee more than $600.00 in a calendar year, you are required by law to send them a W-2 to help them get their taxes done — and to help the government ensure they’re reporting everything correctly. You also must provide a W-2 to any employee if you withheld federal, Social Security, and Medicare taxes from their wages, no matter the total. Here’s a quick overview of how W-2s work and how to complete them for your employees.
What is Form W-2?
A W-2 is used by employers to report employee gross annual wages, federal, Social Security, and Medicare taxes withheld, as well as state taxes (if any) that are withheld throughout the year. Along with employee wages and withholding information, a W-2 also provides totals for deferred compensation, dependent care benefits, health savings account contributions, and tip income.
Think of it this way: if you have employees and paid them at any time throughout the year, you probably need to provide them with a W-2 come January. The exceptions are for contractors or freelancers: For them, you will need to provide a Form 1099-NEC.
In addition to providing W-2 forms to all employees, you are also responsible for filing a copy of each employee’s W-2 with the Social Security Administration (SSA), as well as submitting Form W-3, which includes all the totals from your employees. For businesses with more than 250 employees, you will need to submit your W-2s electronically to the SSA along with your W-3. Read more about filling out your W-3s.
When should W-2s be filed?
Your employees’ W-2s should be received by both current and former employees by January 31st each year. The forms also need to be filed with the SSA by January 31st. A one-time, 30-day extension is possible for businesses that cannot file by that date, but it’s important to note that the extension is only for filing with the SSA – employees still must receive their W-2 from you by January 31st. Also, note that any W-2s which are returned as undeliverable must be kept on file for four years.
If you use a payroll service provider, it’s likely that W-2s will be prepared for you, though it remains the responsibility of the employer to ensure that the information on them is accurate and the forms are sent in a timely manner.
What do you need to fill out a W-2?
When you’re ready to complete your W-2s for the year, you will need the following information at your fingertips:
- A downloadable Form W-2 PDF
- Personal information for each employee, including name, address, and Social Security number
- Your employer EIN number
- Total amount of wages and/or tips paid for each employee
- Total federal, state, and local taxes withheld for each employee
- Total Social Security and Medicare taxes withheld for each employee
- Deductions for dependent care assistance programs for each employee
- Other compensation and benefits including elective deferrals for retirement plans and the cost of employer-sponsored health coverage for each employee
If you’ve been keeping good payroll records throughout the year (or relying on good payroll software) gathering this information should require little effort, if any.
Instructions for filling out Form W-2
Remember that you’ll need to prepare and deliver a different W-2 form for each employee.
Boxes A-F on a W-2 represent employee/employer information:
- Box A – Be careful to ensure your employee’s social security number is entered correctly here
- Box B – Enter your EIN number
- Box C – Enter the name and address of your business
- Box D – This is the control number, and is not necessary to use
- Box E & F – Enter your employee’s name and address
Once complete, enter the following in the numbered boxes:
- Gross wages, tips, and any other compensation.
- Total amount of federal income tax withheld from employee wages for the year.
- Total amount of Social Security wages for the year. Social Security wages can be different than the figure shown in Box 1, as Social Security wages also include any deferrals to retirement plans as well as contributions to Health Savings Accounts. This box will also reflect whether the income threshold ($137,700) has been hit. Once that threshold is reached, you would no longer include the wages above $137,700.
- Total of Social Security tax withheld
- Total of Medicare Wages. Like Social Security wages, Medicare wages can also include retirement deferrals and HSA contributions, but unlike Social Security, there is no income threshold to reach, so all wages are included in the Medicare wage total.
- Total Medicare tax withheld for the year
- Report any Social Security tips received.
- For restaurants and bars, enter any allocated tips that the employee received during the year. Note that there are several special rules for restaurant payroll for tipped wages.
- Box 9 is left blank. It was previously used for businesses that were participating in the W-2 Verification Code pilot program.
- Report any dependent care assistance that was deducted from employee wages, as well as any employer contributions.
- Enter any distributions from nonqualified deferred compensation plans.
- Box 12 is where a variety of tax-deferred compensation, benefits, and non-monetary compensation are recorded. These codes include the following:
A – Uncollected Social Security or RRTA tax on tips
B – Uncollected Medicare tax on tips (but not Additional Medicare Tax)
C – Taxable cost of group-term life insurance over $50
D – Elective deferrals to a section 401(k) cash or deferred arrangement plan (including a SIMPLE 401(k) arrangement)
E – Elective deferrals under a section 403(b) salary reduction agreement
F – Elective deferrals under a section 408(k)(6) salary reduction SEP
G – Elective deferrals and employer contributions (including nonelective deferrals) to a section 457(b) deferred compensation plan.
H – Elective deferrals to a section 501(c)(18)(D) tax-exempt organization plan
J – Nontaxable sick pay
K – 20% excise tax on excess golden parachute payments
L – Substantiated employee business expense reimbursements
M – Uncollected Social Security or RRTA tax on taxable cost of group-term life insurance over $50,000 (former employees only)
N – Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000 (but not Additional Medicare Tax) (former employees only)
P – Excludable moving expense reimbursements paid directly to the employee
Q – Nontaxable combat pay
R – Employer contributions to an Archer MSA
S – Employee salary reduction contributions under a section 408(p) SIMPLE plan.
T – Adoption benefits
V – Income from exercise of nonstatutory stock option(s)
W – Employer contributions (including employee contributions through a cafeteria plan) to an employee’s health savings account (HSA)
Y – Deferrals under a section 409A nonqualified deferred compensation plan.
Z – Income under a nonqualified deferred compensation plan that fails to satisfy section 409A
AA – Designated Roth contributions under a section 401(k) plan
BB – Designated Roth contributions under a section 403(b) plan
CC – HIRE exempt wages and tips (2010 only)
DD – Cost of employer-sponsored health coverage
EE – Designated Roth contributions under a governmental section 457(b) plan
FF – Permitted benefits under a qualified small employer health reimbursement arrangement (the amount the employee is entitled to receive for the year, not the actual amount)
GG – Income from qualified equity grants under section 83(i)
HH – Aggregate deferrals under section 83(i) elections as of the close of the calendar year
- Check the appropriate box for each of your employees if one of these conditions applies. Note that there may be limits to how much W-2 income employees can contribute tax-free to your company’s retirement plan.
- Anything else that needs to be reported can be entered here
- Enter your state and your state identification number
- Enter taxable wages for the state, if state income tax is reported in your state
- This box displays the total amount of state taxes that were withheld for the year
- If county or local tax is reportable, this is where you will enter employee wages
- Enter any county or local taxes withheld from employee wages
- Enter the name of the county or local taxing agency
And that’s it!
If you use a payroll service provider, W-2s should be filled out automatically, which will alleviate a lot of the headaches of end-of-year tax time. For additional information on Form W-2, visit the IRS website for detailed instructions.