From the moment a new employer hires their first employee, a whole new world of payroll logistics, IRS tax forms, and other new responsibilities opens up. While hiring your first employee is an exciting time—your business is growing!—it’s important to get a handle on your new responsibilities.
That said, we know that some of those responsibilities can seem daunting. Parsing tax forms and FICA withholding doesn’t come naturally to many small business owners, and the IRS website isn’t all that helpful either.
That’s why we wrote this guide, along with others, to simplify and explain the new world of payroll taxes, reporting, and IRS forms.
Here, we’re talking about IRS Form W-3, the Transmittal of Wage and Tax Statements. We explain everything new and seasoned employers alike should know, including:
- What Form W-3 is
- Why the Social Security Administration (SSA) and IRS require employers to file it
- How to know if you need to file Form W-3
- When and how to submit Form W-3
What is Form W-3?
If you just need the skinny, here are the main points to know about Form W-3:
- What’s reported on Form W-3: Total employee wages and taxes withheld
- When it’s filed: Annually
- Who needs to file: Most employers in the U.S.
In a nutshell, Form W-3 is a document used by the IRS and the Social Security Administration (SSA) to summarize and transmit an employer’s W-2 forms.
The IRS and SSA use Form W-3 to track the wages, salary, commission, tips, and other compensation employers pay out throughout the year. The form also reports the total income and Federal Insurance Contribution Act (FICA) taxes withheld from employee paychecks.
Form W-3 details, among other information:
- Total income and salary paid out (to all employees) by an employer
- The total portion of that payroll that’s subject to Social Security and Medicare tax
- The total tax (both income and FICA) withheld from that pay
How is Form W-3 different from Form W-2?
Forms W-3 and W-2 are exceedingly similar. They report much of the same information, and every employer who’s required to file one or more W-2 forms must also file Form W-3.
The key difference is that Form W-2 reports information like total wages and taxes withheld for each employee. Form W-3, by contrast, reports the total wages, taxable wages, and tax withheld for an employer.
In short, Form W-2 tells the IRS and SSA how much you paid and withheld for Jane over the course of the year—Form W-3 tells them how much you paid and withheld in total for all of your employees.
How is Form W-3 different from Form W-4?
On the flip side, Form W-4 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 new employees provide when they fill out a W-4 form tells you how much income tax to withhold from each of the employee’s paychecks.
You aren’t required to, but many employers opt to have employees fill out a new W-4 form each year—to ensure you’re withholding the correct amount.
Why the IRS and SSA require employers to file Form W-3
When individuals file their annual tax return, they report the total 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 have a vested interest in ensuring individuals accurately report all of the income they’re paid throughout the year, so they require employers to file W-2 forms for each employee.
Similarly, in order to keep track of all the wages paid, income, and FICA taxes withheld by an employer, the SSA requires Form W-3 to act as a cover sheet and compilation of all included W-2 forms.
What are withholding and FICA taxes though?
So maybe you’ve heard of income tax withholding and FICA taxes, but are you totally clear on what they are? If the answer is “Nope,” let’s take a step back and explain.
When it comes to payroll and employment taxes, there are three main types of tax:
- Withholding taxes: These are the taxes you withhold from your employee’s pay, and they include both the standard income tax and the employee’s portion of FICA taxes. It’s your job to withhold these taxes and deposit them with the appropriate tax authority. These are part of what’s reported on Form W-3.
- Employer taxes: As the name implies, you, the employer, pay the entirety of these taxes.
- Shared taxes: These taxes are split (usually 50/50) between you and your employees. Social Security and Medicare taxes (or FICA) are some of the most notable shared taxes. The aggregate of all of your employees’ contributions to these taxes is also reported on your W-3 form.
Income taxes represent the largest portion of the IRS tax base. FICA taxes, on the other hand, pay into Social Security and Medicare (also known as social safety net program) within the SSA.
Each employee’s income tax rate varies based on their annual income, qualified dependents, personal preference, and other factors. That’s why you’ll need to collect Form W-4 from each employee. The form tells you how much income tax to deduct from each paycheck.
Standard 2019 FICA tax rates add up to 7.65% for each party, including the employer and employee. The breakdown looks like this:
- 6.2% Social Security tax (also called OASDI)
- 1.45% Medicare tax
It’s important to note that Social Security tax only applies to the first $132,900 an employee makes in the year. Once their earnings surpass that threshold, no additional Social Security tax is incurred by you or the employee.
By contrast, employees earning more than a set income threshold must pay an additional 0.9% Medicare tax on earnings over $200,000 for those filing as single or $250,000 for those filing jointly with a spouse. Keep in mind: The additional Medicare tax is paid only by the employee and not the employer.
Do I need to submit Form W-3?
In short, if you’re required to file one or more W-2 forms for employees, then you must also file Form W-3 with the Social Security Administration (SSA). To break that down, if you:
- Withheld any income, Social Security, or Medicare tax from employee wages
- 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 both Form W-2 and Form W-3.
Do I need to send Form W-3 to employees?
Here’s an easy answer for you: No. Employers are required to send each employee their respective W-2 form by January 31st of each year—but they do not send Form W-3 to anyone other than the Social Security Administration (SSA).
How to fill out Form W-3
If you fall into the vast majority of employers who are required to file W-2 forms, and therefore Form W-3, let’s talk about how and when you’ll do just that. In order to fill out Form W-3, you’ll need to have this information at the ready:
- Your business details, including employer identification number (EIN), legal address, and other contact information
- Total wages (salary, tips, commission, and other compensation) paid to employees over the prior year
- Total taxable wages for Social Security and Medicare
- Total income tax withheld—both federal and state
- Total Social Security tax withheld
- Total Medicare tax withheld
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.
Filing W-2 forms
Form W-3 reports the total wages, taxable wages, and taxes your business withheld throughout the year. But its primary purpose is to act as a “cover sheet” for your W-2 forms.
Employers are also required to file Form W-2—which details the same information as Form W-3, but broken down by employee—for each employee you had throughout the year. When the time comes, you’ll file a W-2 form for each employee along with one Form W-3 to summarize them all.
When to submit Form W-3
Form W-3 is an annual filing, so the IRS and SSA require employers to fill out and submit it once each year. The annual deadline for filing Form W-3 (along with all corresponding W-2 forms) is January 31st.
Keep in mind: You’re also required to send copies of W-2 forms to your employees by the same deadline.
Submitting Form W-3 to the government
Employers have a few options to choose from when the time comes to submit Form W-3:
- E-file online
- Mail in your form
- Work with an accountant to file for you
- Any combination of the previous options
Note: Employers who need to file more than 250 W-2 forms in a year must e-file Form W-3 online. In 2021, that maximum threshold will go down to 100 or more. Beginning in 2022, the maximum number of forms drops to 10 or more.
According to the SSA, e-filing is faster, more accurate, and more secure. And remember: If you’re filing more than 250 W-2 forms (for 2019) along with your Form W-3, you’re required to file online.
To file Form W-3 online, you’ll use the SSA’s Business Services Online (or BSO) portal. Using the BSO portal, you’ll have two options for filling out Form W-3:
- Create a fill-in version of the form and print out copies to submit OR
- Upload wage files from your tax or payroll software (BSO will automatically generate the corresponding Form W-3).
When it comes to paying your annual withholding and FICA tax balance and making deposits online, you can use the Electronic Federal Tax Payment System (EFTPS).
If you choose to work with a tax professional or tax software, the IRS recommends making your payments via Electronic Funds Withdrawal (or EFW). This option allows you to e-file and authorize payment with one step.
Mail in your form
While the SSA prefers employers to file online, small businesses also have the option to mail in Form W-3 along with all of your W-2 forms and corresponding tax payments.
Before mailing in your form and payment, you’ll need to order paper copies of Form W-2 and W-3 from the IRS. Note: these forms cannot be downloaded from the IRS website and then mailed in—you have to order paper copies from the SSA.
Once you’ve ordered and filled out the forms, you can mail them to the address listed below (as well as on page 5 of the Instructions for Forms W-2 and W-3):
Social Security Administration
Direct Operations Center
Wilkes-Barre, PA 18769-0001
Note: If you need to send the forms overnight to make the deadline (typically via private carriers like Fedex or UPS), 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
The last option employers have for filing Form W-3 and any outstanding payments or deposits is to work with a tax professional who can handle both the filing and depositing for you. Both of these are often done via the Electronic Funds Withdrawal (EFW) system referenced previously.
Phew—we covered a lot about IRS Form W-3 today. For quick reference, here are the main points employers like you need to know:
- Form W-3 reports the total salary and wages paid to all of your employees, along with total income and FICA taxes withheld throughout the prior year
- Every employer that files one or more W-2 forms must also file Form W-3
- Order paper copies of the form on the IRS website and e-file through the SSA’s BSO portal