Each year, employers are required to send a report to employees showing their total wages and deductions, so the employees can include the information on their income tax returns. This report is a W-2 form, and it must also be filed with the Social Security Administration (SSA).
Before you prepare and send 2020 W-2 forms to employees and the SSA, follow these steps to make sure everything goes smoothly.
Be sure to use the new 2020 W-4 form for information for 2020 W-2 forms. The new W-4 form is to be used beginning January 1, 2020, for new hires or for current employees who want to make changes in their withholding.
COVID-19-Related Reporting on Form W-2
Employee Social Security Deferral. If any of your employees was eligible for, and chose to defer, Social Security tax from September 1, 2020, through December 31, 2020, you must:
- Include any wages for which you deferred withholding and payment of employee Social Security tax in Box 3 (Social Security wages) and/or Box 7 (Social Security tips).
- Not include in Box 4 (Social Security tax withheld) any deferred employee Social Security tax that has not been withheld.
Paid Sick Leave and Family Leave. If you gave employees paid sick leave or family leave benefits under the FFCRA for Coronavirus-related absences, you must report the amount as follows:
- Boxes 1, 3 (up to the Social Security maximum), and 5
- Box 14 (the same amount as Box 1) or on a separate statement.
You must also label these payments to show which section of the law applies:
- "Sick leave wages subject to the $511 per day limit”
- “Sick leave wages subject to the $200 per day limit”
- “Emergency family leave wages
Small and midsize employers who gave employees paid sick and family leave for reasons related to COVID-19 are eligible for tax credits to offset the cost of this leave.
Tax Law Changes for Form W-4
The IRS changed the W-4 form for 2020, to account for the lower tax rates and possible under-withholding. Use the 2020 W-4 form for new employees and also for current employees who want to make changes to their W-4 forms after January 1, 2020.
You don't have to require other current employees to have a new W-4 form.
Correctly Classify Workers as Employees
It's sometimes difficult to tell whether a worker is an employee or independent contractor, but the IRS requires that workers be classified correctly.
The IRS can impose fines and penalties on companies who fail to classify workers correctly, especially if the worker you pay as an independent contractor should be considered an employee.
An employee is a worker who performs work at the direction of an employer. In general, anyone who performs services for an organization is an employee if the organization can control what will be done and how it will be done.
On the other hand, an independent contractor is an individual or business that provides services to the general public. The independent contractor is a separate business entity and is not considered an employee.
Some examples of independent contractors are consultants, agents, or brokers. Typically someone is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done.
The work of independent contractors is often incidental or not essential to the business; for example, a cleaning service, payroll processor, or IT service.
Learn more about classifying workers as employees or independent contractors, and consult an employment attorney for assistance.
Check Distribution and Filing Deadline for the Current Year
Two steps are involved in the W-2 process. The first step is distributing the W-2 forms to employees. The second step is filing these forms with the SSA.
The deadline for both distributions to employees and filing with the SSA is around January 31 of the year after the tax year (unless it falls on a weekend or holiday). For example, if you are preparing W-2 forms for 2020, the deadline is February 1, 2021.
The specific deadline date may change if the date is a weekend or holiday. See this article about W-2 and 1099 deadlines for the current year.
It's a good idea to give employees their forms early in January, so they have time to review them, and you can fix errors before you file with the SSA.
Check Employee W-4 Forms
Making sure employees have accurate and current information on form W-4 will help you prepare and distribute W-2 forms.
Employers are required to have a W-4 form on file for all employees at all times. Form W-4 includes information necessary for determining the amount of an employee's federal income tax withholding, using marital status, number of dependents, and any additional amounts to be withheld.
If an employee asks for help with completing a W-4 form, the IRS suggests you give the employee the IRS withholding calculator that they can use to figure out their withholding amount.
Form W-4 must be completed at hire and at any time the employee needs to make a change to their tax status. The employee should change the W-4 form if the employee's personal information (including marital status and number of dependents) changes or if the employee's address changes.
The employee may also change the W-4 form at any time to alter the amount of withholding. Before the end of each year, you should ask all employees to review their W-4 form to make sure the personal information is accurate.
Review Your W-2 Process and Get Forms
If your company is new to payroll processing, or if your payroll situation has changed recently, it's a good idea to review the process of finding, completing, and distributing end-of-year reports to employees.
You can get W-2 forms from an office supply store, your CPA, tax or accounting software, or the IRS.
You cannot download W-2 forms from the IRS or elsewhere on the Internet. Copy A of the W-2 form is in a specific color of red ink and cannot be duplicated. You must file the specific IRS form of Copy A with the Social Security Administration. (This is the copy you keep and file with Social Security at the end of January.
Here are some options for preparing W-2 forms:
- Using accounting software. If you have only a few employees, and you use accounting software, you may be able to purchase an add-on to prepare W-2 forms using this software.
- Using tax preparation software. If you use one of the common tax preparation software programs, either online or in a desktop version, and you have purchased the business version of this software, check to see whether W-2 processing is included.
- Using purchased W-2 forms. The major office supply companies have pre-printed W-2 forms for use with software on a CD, which allows you to input the information for these forms manually and print them out on your printer.
Whichever method you use for completing and printing W-2 forms should also have W-3 transmission forms.
You May Also Need W-3 Transmission Forms
Form W-3 is a transmission form that employers must when they submit W-2 forms to the Social Security Administration. The W-3 form compiles all the information from each box of the W-2 form for all employees.
Follow the instructions for Form W-3 to complete this form.
The W-3 form is only used when you are sending paper copies of the W-2 form to the Social Security Administration. If you decide to file employee W-2 forms with the Social Security Administration online, you don't have to submit a W-3 transmittal form.
Don't Forget to Sign Your W-3 Form
If you are sending W-2 and W-3 forms by mail, you must sign the W-3 form. The signer must be authorized as an agent of your company, or the person can write "For (name of payer)" on the signature line, next to the signature.
If you are sending W-2 forms online, your PIN number is used as a signature.
Gather Payroll Information for W-2 Forms
First, you will need some basic information about your company for all W-2 forms:
- Your company's employer ID number
- The name, address, and zip code of the business
- Your company's state tax identification number
You also will need to gather information about each employee for the tax year, both personal information and payroll information:
- Employee name and address and social security number or other tax ID number from the employee's W-4 form
- Gross pay: the amount paid to that employee: total wages, tips, and other compensation
- Amount of federal income tax withheld
- Social security wages (up to the Social Security maximum amount for the year)
- Medicare wages and tips and Medicare tax withheld, including the additional Medicare tax for high-income employees
- Allocated employee tips paid
- Dependent care benefits paid, and other benefits taxable to the employee
- For each state where the employee worked, the state wages and tips paid, and the state income tax withheld
- Local wages and tips paid, and local income tax withheld
An employee's wages for Social Security and Medicare may be different from their gross wages.
Prepare W-2 Forms
Form W-2 has several copies:
- Copy A (special red print ) is for the Social Security Administration.
- Copy 1 is for the state, city, or local tax department.
- Copy B is for the employee to use when filing their federal tax return.
- Copy C is for the employee's records.
If you are preparing W-2 forms yourself (without the aid of a software program, tax professional, or payroll service), take your time with each form to be sure you have entered the information in the correct box and that the information is correct for that employee.
You can't complete Copy A by hand. Use black ink in 12-point Courier font. Copy A is read by machine and must be typed clearly with no corrections, staying within the box.
To make sure you don't miss anything, follow the IRS instructions for W-2 forms.
Check for Errors Before Sending W-2 Forms to Employees
To minimize issues and having to re-send W-2 forms, check the W-2 forms for errors. Common W-2 errors include using the wrong year's form, failing to include information, putting information in the wrong box, and failing to stop Social Security withholding at the maximum for the year.
Decide How to Distribute W-2 Forms to Employees
Once you have created W-2 forms, your next decision is how to distribute them to employees. Remember that the deadline for the distribution of W-2 forms to employees is around January 31 of the year following the tax year (unless it falls on a weekend or holiday). For example, employers who were required to distribute 2020 tax year W-2s have until February 1, 2021, to distribute them.
Send copies B and C, plus two of form W-2 to each employee.
You have two options for distributing W-2 forms (Copies B, C, and 2) to employees: either mail them or distribute them to employees in person. If an employee picks up their W-2 form in person, you may want to have the employee certify that the form was picked up, to avoid questions about whether this was done.
Filing W-2 and W-3 Forms With the SSA
After you have decided how to prepare W-2 forms and have distributed these forms to employees (by January 31 of the year following the tax year), your next decision is to determine how to file these forms with the Social Security Administration (SSA).
All W-2 forms must be filed with the SSA, along with a transmittal form W-3. Two options for submitting these forms.
- You can file online at the Business Services Online section of the Social Security website. You will have to register first, then complete the appropriate forms online. If you file online with the BSO, you don't need to include W-3 forms.
- You may also mail completed W-2 forms (Copy A) along with Form W-3 to the Social Security Administration. The mailing address is Social Security Administration Direct Operations Center Wilkes-Barre, PA 18769-0001.
Handling Employee Requests for Duplicate W-2 Forms
Employees often misplace or lose W-2 forms, and they may come to your payroll department requesting a duplicate copy of their W-2 Form. Before you distribute W-2 forms, consider how you will respond to these requests.
If an employee loses a Form W-2, write "REISSUED STATEMENT" on the new copy, and give it to the employee. You don't need to add "REISSUED STATEMENT" to the copy you send to the SSA.
- If you have printed out the forms internally, you can simply reprint the W-2 form and give it or mail it to the employee.
- If the form was prepared by an outside payroll service, they may charge you for the cost of reprinting and mailing the form. You may want to charge employees for a first duplicate form, or the second duplicate in a year. (It happens!) The IRS says you are "not prohibited" from charging a fee for a duplicate W-2 form.
Whatever you decide, it's a good idea to communicate your policy regarding duplicate forms to employees. Having a charge for duplicate forms may seem extreme, but it might cut down on the number of lost forms that you have to replace.
Check State Regulations for W-2 Forms
In addition to filing the W-2 form with the SSA, you must send Copy 1 of the form to your state, city, or local tax department.
When you complete a W-2 form for an employee, one portion of that form (Copy 1) is designated to be submitted to the state where the employee works. If the employee works in more than one state, you will have to submit a copy Copy 1 of the W-2 form to each state.
Many states are conforming to the January 31 deadline for filing W-2s with the SSA. Each state has different requirements for submission of W-2 forms and any transmittal forms. Check with your state's taxing authority or state revenue department to learn that state's requirements.
Extension of Time for W-2 Forms
If you need a 30-day extension of time to file W-2 forms with the SSA, you can file an application on Form 8809. The application must be filed no later than the due date of the form. The IRS grants extensions "only in limited cases," like a catastrophe that destroyed records.
If you need an extension to furnish W-2 forms to employees, you must send a letter to Internal Revenue Service: Attention Extension of Time Coordinator 240 Murall Drive, Mail Stop 4360 Kearneysville, WV 25430.
Include all the details about your company (company name, address, and Employer ID Number) along with a statement that you are requesting an extension to furnish "Forms W-2" to employees, the reason for the delay, and your signature. If your request is approved, you can only file one extension.
A Final Suggestion
Even if you have only a few W-2 forms to complete, it's a good idea to file online using the Social Security Administration Business Services Online procedure. This process improves accuracy, and you will be familiar with it when the online filing process is required for 10 forms or more beginning in 2022.