If there’s one constant in the business world, it’s that every time you grow, there are new challenges and responsibilities. Don’t get us wrong—these are high-class problems—but that doesn’t eliminate the growing pains.
Hiring your first employee is one of those business milestones. While it typically means your business is booming, hiring, running payroll, managing tax forms… all of these things can be confusing. And the Internal Revenue Service (IRS) website doesn’t do much to make it easier on employers.
That’s why we’ve created this guide, among others, to demystify the world of payroll taxes, reporting, and IRS forms.
In this guide, we’re explaining IRS Form W-2, the Wage and Tax Statement. We cover everything employers new and seasoned need to know, including:
What Form W-2 is
Why the Social Security Administration (SSA) and IRS require employers to file it
How to know if you need to file W-2 forms
When and how to submit W-2 forms and furnish copies to employees
What is a W-2 form?
If you just need the skinny, here are the main points to know about Form W-2:
What’s reported on Form W-2: Employee wages and taxes withheld
When it’s filed: Annually
Who needs to file: Most employers in the U.S.
To put it simply, Form W-2 is a document used annually by individuals, the IRS, and the Social Security Administration (or SSA). It’s used for two main reasons.
For one, the IRS and SSA use W-2 forms to keep track of the wages, salary, commission, and tips individuals receive throughout the year—and to ensure that income is reported on the individual’s tax return. Individuals also use their W-2 forms to fill out and submit with their annual tax return.
The typical W-2 form details:
The income paid to an employee
The total portion of taxable income subject to Social Security and Medicare (FICA) taxes
The income tax and FICA taxes withheld from that pay throughout the year by the employer
How is Form W-2 different from Form W-3?
Forms W-2 and W-3 are very similar, and they report much of the same information.
In short, Form W-3 serves as a “summary” of sorts for all of the W-2 forms an employer must submit. Since employers are required to fill out and file a W-2 form for each employee, they’re also required to file Form W-3—which aggregates the information from all of the W-2s onto one form.
In effect, every employer who files at least one W-2 form must use Form W-3 to transmit their W-2 forms.
How is Form W-2 different from Form W-4?
Form W-4, on the other hand, is considered part of all new hire paperwork. Whenever you onboard a new employee, employers are responsible for having them fill out a W-4 form and submitting the completed form to the appropriate State Directory of New Hires. You can find the correct directory for your state here.
The information provided by new employees when they fill out a W-4 form tells you, the employer, how to calculate the amount of income tax to withhold from each employee’s wages.
While it isn’t required, employers may opt to have employees fill out a new W-4 form at the beginning of each year—to ensure the amount you’re withholding is correct. New W-4 forms should be submitted whenever the employee’s personal or financial situation changes, as this can impact their income tax calculations.
Why the IRS and SSA require employers to file W-2 forms
When individuals file their annual tax return, they report the income they’ve earned, taxes already paid (usually via employer withholding), and tax owed (or due to be refunded). Both the IRS and the SSA (Social Security Administration) have a vested interest in ensuring individuals accurately report all of the income they’re paid throughout the year.
To minimize the risk of mistakes and inaccurate reporting (whether malicious or accidental), the IRS requires employers to file Form W-2 with the SSA and furnish a copy of the form to each employee.
Not only does it help tax authorities keep track of income and taxes paid and owed, it also helps employees to fill out their own tax returns with the correct information.
Wait—what are withholding and FICA taxes anyway?
Hold up, though. While many of us have heard of income tax withholding and FICA taxes, let’s get super clear about what they entail. In the payroll and employment world, there are two main types of tax:
Withholding taxes: These are taxes your employee’s pay on their gross income—both the standard income tax and their portion of FICA taxes. You’re responsible for withholding these taxes from employee wages that are subject to these taxes, and depositing them to the correct tax authority. These are part of what’s reported on Form 941.
Employer taxes: As the name implies, you, the employer, are responsible for paying the entirety of these taxes. This includes the employer portion of FICA taxes. (Copied from 941 article)
Income taxes represent the bulk of the IRS tax base while FICA taxes pay into social safety net programs (like Social Security and Medicare) within the SSA.
Since each employee’s income tax rate will vary based on their annual income, qualified dependents, personal preference, and other factors, you’ll need to collect a W-4 form annually from each employee. This form will tell you how to calculate the income tax to deduct from their wages.
Standard FICA taxes for 2021 total 7.65% for each party, the employer and employee. The breakdown looks like this:
6.2% Social Security tax (sometimes called OASDI)
1.45% Medicare tax
The Social Security tax only applies to the first $142,800 an employee earns (for 2021). After that, no more Social Security tax is incurred by either the employee or employer.
On the flipside, employees earning more than a set annual income incur an additional 0.9% Medicare tax on any earnings over $200,000 for those filing as single or $250,000 for those filing jointly with a spouse. It’s important to note that the additional Medicare tax rate is applied in addition to the 1.45% and is paid only by the employee, the employer will still owe tax on those wages but only 1.45%.
Do I need to submit a W-2 form?
By now, you’re probably asking yourself whether or not you need to file and send out W-2 forms. The short answer is, if you have at least one employee who earned $600 or more during the calendar year, you need to submit Form W-2 (and Form W-3, for that matter).
As the IRS puts it, “You must file Form(s) W-2 if you have one or more employees to whom you made payments (including non cash payments) for the employees’ services in your trade or business during 2021.” In other words, if you:
Withheld any income, Social Security, or Medicare tax from employee wages
Had an employee who claimed no more than one withholding allowance (for 2019 or earlier Forms W-4) or had not claimed exemption from withholding on Form W-4
Paid $600 or more in wages—even if you did not withhold any income, Social Security, or Medicare tax
Then you’re required to file Form W-2 annually for each employee and furnish a copy to that employee.
How to fill out Form W-2
If you’re one of the overwhelming majority of employers who needs to file a W-2 form (or several), let’s get down to the how and the when. Before we jump in, here’s a look at the information you’ll need to have on hand in order to fill out W-2 forms:
Employee details like full legal name, social security number (SSN), and legal address for each employee (note that the SSN can be truncated on copies not meant for federal and state filing)
Total wages (including salary, tips, commission, and other compensation) paid to each employee
Taxable Social Security and Medicare wages for each employee
Income tax withheld, both federal and state
Social Security tax withheld
Medicare tax withheld
Any additional fringe benefits you offer that may require reporting on Form W-2
The good news is that most payroll systems (including Wave) keep track of all of this information for you. When tax time arrives, you can quickly and easily pull up these details and more for each employee.
Filing Form W-3
As we mentioned above, every employer who is required to file one or more Form(s) W-2 must use Form W-3 to do so. Form W-3 acts as a cover sheet, or summary, compiling the information from all of your W-2s onto one sheet.
It helps the IRS and SSA keep track of (and keep together) all the W-2 forms you file, as well as the total wages, taxable wages, and tax withholding your business paid or withheld throughout the year.
When to submit Form W-2
Form W-2 is an annual filing—meaning the IRS and SSA require employers to complete and file it once per year. The annual deadline for filing your W-2 (and W-3) forms is January 31st following the year for which you are reporting. Employers are also required to furnish copies of W-2 forms to each employee by the same deadline, on January 31st.
How to submit Form W-2 to the government
When it comes to submitting W-2 forms and making any final tax deposits, small businesses have a few options to choose from:
E-file and pay online
Mail in your form and payments
Work with an accountant to file for you
Any combination of the above
Note: Employers who need to file 250 or more W-2 forms in a given year are required to e-file online. In 2021, that maximum threshold will go down to 100 or more. Beginning in 2022, the maximum number of forms is scheduled to drop to 10 or more.
E-file and pay online
The SSA touts e-filing as the faster, more accurate, and more secure way to file and pay taxes and make tax deposits. And remember: If you’re filing 250 or more W-2 forms, you must file online.
If you’re working with a tax software or professional, the IRS recommends you make your payments via Electronic Funds Withdrawal (or EFW). With this option, you can e-file and authorize payment in one step.
Mail in your form and payment
While the SSA prefers and recommends online filing, small businesses also have the option of mailing in W-2 forms along with any corresponding tax payments.
Note: If you’re sending the forms overnight via private carrier (Fedex, UPS, etc.) in order to make the deadline, you’ll need to send them to this address instead:
Data Operations Center
ATTN: W-2 Process
1150 E. Mountain Drive
Wilkes-Barre, PA 18702-7997
Work with an accountant to file for you
Your last option for filing Forms W-2 and W-3 and any outstanding payments or deposits is to work with an accountant or other tax professional who can file both the form and payment for you. Typically, this is done via the Electronic Funds Withdrawal (EFW) system we mentioned above.
How to furnish W-2 forms to employees
Similarly, copies of W-2 forms must be sent to each employee by January 31st of the following year. Employers have a few main options for doing this:
Deliver copies electronically via your payroll, HR, or tax software
Print and mail physical copies to each employee’s legal address
There’s a lot for employers to know and understand about W-2 forms. To keep it simple, here are the biggest takeaways to keep in mind come tax time:
W-2 forms report the salary and wages paid to each employee, along with the income and FICA tax withheld from that pay
Nearly every employer in the U.S. must file W-2 form(s) for each employee
Order paper copies of the form on the IRS website or e-file through the SSA’s BSO portal