The passing of December means the holidays are over and for employers, it means something else: it is W-2 and W-3 season again. Both forms must be completed and filed by the end of January, so there is no time to waste in getting things in order in the payroll department.
In order to help employees complete their tax returns and comply with regulations relating to Social Security, employers have a number of different forms they have to complete and file for the 2016 tax year. The two main forms are the W-2 and W-3, but others may apply in certain situations – like the W-2AS and W-3SS.
Failure to file the forms on time could lead to significant penalties. Companies also need to be aware that extensions to file the forms are no longer granted automatically. If your company cannot comply with filings required after the first of the year, an extension application must be filed using form 8809. If approved, a 30-day extension will be granted.
W-2 Form Basics
The W-2 form is the form employees use to complete their individual tax returns. The form contains information about wages, taxes withheld, health insurance benefits, and more. Companies should be completing three copies of the form at a minimum. One copy goes to state taxing authorities; another goes to the IRS, and the employee maintains the third for his or her records.
The IRS reminds companies that W-2 and W-3 forms are routinely rejected due to basic errors. Those errors include:
- Conflicts between Medicare wages/tips and Social Security wages/tips
- Conflicts between wages/tips in the amount of taxes assessed for Social Security and Medicare
- Total reported earnings being less than the amount subject to Social Security and Medicare withholding.
In the event forms are rejected the Social Security Administration will inform the employer electronically or by mail so that corrected forms can be submitted.
W-3 Form Basics
The W-3 form is essentially the Social Security equivalent of the W-2. Employers must file W-3s for every employee who earns wages, regardless of how those wages are paid. The government now strongly urges all W-3 forms be filed electronically to avoid delays in the mail. Fortunately, both forms can be filed together electronically.
All W-2 and W-3 forms filed online must be filed no later than January 31. In states where copies of the forms need to be filed, employers may have to print paper copies and submit them by mail.
Don't Forget the W-4
This time of year is a good time for HR departments to help employees review their W-4 forms. The W-4 form is the form workers fill out to designate withholding from their paychecks for income, Social Security and Medicare taxes.
If a worker ends up not withholding enough, he or she will have a tax bill come April. The payroll department may want to counsel that employee to increase withholding so as to avoid a repeat in 2018. By the same token, a worker getting thousands of dollars back in annual tax returns is withholding too much. Reducing the amount puts more money in the worker's pocket week-to-week.
Payroll departments have a lot to worry about at this time of year, including W-2 and W-3 forms. As a small business owner, is this something you struggle with at year's end? If so, we hope you will consider turning over your payroll to a professional service provider like BenefitMall. We take the stress out of tax season so our clients can focus their attention on what matters most: their business.