For every business with employees, the W-2 form is an important document that has to be filled out every year. W-2 form reports an employee’s annual taxable wages and the amount of tax withheld from wages. As one of statements filed with the Internal Revenue Service (IRS), it needs to be as accurate as possible in order to avoid W-2 form mistakes that result in audits or illegal actions by the federal government.
What Is W-2 Form?
Every employer is legally required to send out a W-2 form to their employees regardless of whether they worked for one day or one year and no matter how low their earnings or wages are. W-2 Form reports taxable wages paid to an employee during a one-year period, along with employment taxes withheld for that year.
W-2 forms can be sent in either paper or digital form and should be received by employees no later than January 31 of the following year. The form is filed for the previous year. For example, if employees receive a W-2 form in January 2019, it reflects their income for 2018.
The form is divided into state and federal sections, since employees need to fill taxes on both levels. The standard information on each W-2 form includes:
- Employee’s Social Security number,
- Employee’s personal information, such as their name, address, and zip code,
- Business’s name, address, zip code, and Employer Identification Number (EIN),
- Wages, tips, and other compensation, and
- Taxes withheld, such as Social Security, Medicare, and income taxes.
Providing W-2 form to an employee on time is one of the many responsibilities employers have. Since they need to file the form for each employee they are withholding income, social security, or Medicare tax from, it is easy to make W-2 form mistakes. When a mistake happens, it is important to correct it immediately and avoid any potential fines.Avoid putting yourself at risk by finding all the necessary information on payroll taxes and forms required to calculate and submit them.
Common W-2 Form Mistakes
It is critical that the W-2 wage and tax statements employers prepare and file for employees are accurate and error-free. W-2 form mistakes can cause a number of complications some of which an employer can be penalized for. Some of the most common W-2 form mistakes include:
Incorrect or Missing Employer Identification Number (EIN)
The SSA and IRS maintain employer records by EIN. Reports received with incorrect EINs may be credited to the wrong record. Either missing or incorrect EINs may result in the IRS assessing penalties for failure to file correct reports.
Incorrect Employee Names and Social Security Numbers (SSNs)
The Social Security Administration (SSA) cannot credit wage earnings to employee records unless the employee name and SSN on the W-2 form match the name and number in the SSA’s files. If wages cannot be credited to an employee’s Social Security record, this could result in a potential loss of benefits for that employee.
Use of Titles and Abbreviations in Name Fields
The name fields of wage reports should not include any titles or abbreviations to designate the employee’s position, title, company, division, etc. Titles in the employee name fields could prevent SSA from electronically identifying the employee for whom the wages are reported.
Failure to Complete the Retirement Plan Field
On W-2 form, the Retirement Plan field of Box 13 must be checked when the worker is an active participant in a retirement plan or a simplified employee pension plan maintained by the employer. Failure to make an entry when required can lead to income tax problems with the IRS for the employee.
Downloading W-2 Form
Employers can find W-2 form on the IRS website, but this version is only for information purposes. Instead of downloading and using the form from the IRS website, employers need to buy official copies of W-2 form on the IRS website or from an authorized seller.
Using W-2 Form from the Wrong year
W-2 form changes every year. Therefore, employers need to prevent making one of common W-2 form mistakes and make sure to provide the correct form for each tax year.
Submitting a Handwritten W-2 form
It is unacceptable to send handwritten W-2 forms to employees and the SSA. Instead, employers need to print them.
In addition to these W-2 form mistakes, the IRS identifies several common formatting errors that employers make on W-2 form:
- Decimals and cents – Employers need to use decimals and cents when entering dollar amounts on the form. Dollar amount entries should look like this: 0000.00
- Ink color – Employers should only use black ink on W-2 form. Other ink colors are too light for the scanners to process.
- Font size – The font must be big enough to read, but small enough to stay within the box boundaries.
- Dollar signs – Money amounts should not have a dollar sign.
Preventing W-2 Form Mistakes and Penalties
The IRS may impose a penalty for each W-2 Form with a missing or incorrect information. Furthermore, according to the IRS, employers are responsible for completing W-2 forms – not employees.
This means that, as business owners, employers have to make sure every employee’s form is completed and filed on time. If they file the forms late, they might have to pay a fine. And the later they file W-2 forms, the higher that fine will be.
For these reasons, employers need to prevent or address any W-2 form mistakes instead of dealing with penalties later. With the right software that offers tools such as an error-checking algorithm for accurate processing, employers can manage all the tasks efficiently and entirely avoid W-2 form mistakes.
Filing W-2 forms electronically with payroll software allows employers to process tax information faster, record all employee hours and salaries, pre-fill the W-2 forms to save time, and file online with one click of a button.
As a result, instead of dealing with cumbersome and error-prone form filling, employers can ensure compliance, reduce costs, and focus on running their business.