How to Prepare W-2 Wage and Tax Statements
Important: W-2 Reporting of COVID-19 Payments to Employees
What Is Form W-2?
Form W-2 includes information on employee wages paid the previous calendar year and withholding from those wages, as well as information on benefits, and other deductions from wages.
When Are W-2 Forms Due?
W-2s are due to employees by January 31, for the previous calendar year. If January 31 is a weekend or holiday, the reports are due the next working day. Check this article for the specific end-of-year payroll tax reporting due dates for the current year.
W-2 forms are due to the Social Security Administration (SSA) by January 31. After you have given W-2 forms to employees, you must also submit these forms, along with transmittal form W-3, to the Social Security Administration (SSA).
Changes to W-2 Reporting for COVID-19 Payments
Two 2020 COVID-19 relief measures that affect employee wages and salaries must be reported on 2020 W-2 forms.
Deferral of Employee Social Security Tax. An executive action in August 2020 allowed employees to defer their Social Security tax withholding between Sept. 1 and Dec. 31, 2020. You must:
- Include any wages for which you deferred this tax withholding in Box 3 (Social Security wages) and/or Box 7 (Social Security tips)
- But don't include these amounts in Box 4 (Social Security tax withheld), if you deferred the withholding.
Paid Sick Leave and Family Leave. The Families First Coronavirus Relief Act (FFCRA) required employers to pay employees for COVID-related absence, with sick pay and family leave payments. If you made either or both of these payments to employees during 2020, you must report amounts as follows:
- In Boxes 1, 3 (up to the Social Security maximum), and 5, and also
- Box 14 (the same amount as Box 1) or on a separate statement
You must also label the payments, depending on the type of payment:
- “Sick leave wages subject to the $511 per day limit”
- “Sick leave wages subject to the $200 per day limit”
- “Emergency family leave wages”
Gathering Information to Prepare W-2 Forms
The information for this form comes from your payroll register, which shows year-to-date totals for each employee for wages and withholding, along with deductions for medical plans, health savings accounts, and other items.
Make sure you are using the correct W-2 form. Use the form dated for the tax year, not the year you are preparing the form. For example, if you are preparing W-2s in January 2021 for the 2020 tax year, use the form dated 2020.
Parts of the W-2 Form
The parts of this form and what they are used for:
- Copy A goes to the Social Security Administration (SSA). Copy A is usually printed on a red form.
- Copy 1 is for the city, state or locality
- Copy B is for filing with the employee's federal tax return
- Copy C is for the employee's records
- Copy 2 is another copy for another city, state, or locality
- Copy D is for the employer's records.
How to Prepare Form W-2
This information is a general overview of the process for completing a W-2 form. See the Instructions for Form W-2 for more details.
Employer information: For each W-2 you prepare, you will need to include information about your business, including employer ID number (EIN) and employer name and address.
Control number: You may want to add an internal control number on each W-2 if you are paying many employees. You can generate the number yourself, or your payroll preparation software may generate this number.
- Total wages, tips, and other compensation (Box 1). This is gross pay for all hourly and salaried employees.
- Total amount of withholding(Box 2)
- Total Social Security wages (up to the Social Security maximum)(Box 3).
Social Security wages and Medicare wages may be different from total wages in Box 1. Some pay is not included in Social Security or Medicare wages, so you may need to reduce the entry in Box 3 and Box 5 by these amounts.
- Total Social Security Tax Withheld (Box 4)
- Total Medicare wages and tips (Box 5)
- Medicare tax withheld (Box 6). This amount includes the amount of additional Medicare tax for higher-paid employees.
- Social Security tips (Box 7) and allocated tips(Box 8) (Check to make sure you separate reported tips from allocated tips.)
Next, you will need information about employees and total wages and withholding for each employee for last year:
Other payments. You may have paid advance EIC payments (earned income credit)(Box 9) and dependent care benefits (Box 10) paid to employees.
Information on Retirement Plan Participation and Statutory Employees
On each W-2 you must check the appropriate box if the employee participates in a retirement plan (Box 13) or a non-qualified plan (Box 11), if this employee is a Statutory Employee (Box 13), or if the employee received third-party sick pay (Box 13.
Box 12 is for amounts for other compensation or reporting. You can enter up to 4 types of compensation. Some of the most common information items for Box 12:
- Uncollected Social Security, RRTA (railroad retirement), or Medicare tax, on tips or group life insurance
- Elective deferrals to 401(k), 403(b), and other qualified retirement plans
- Non-taxable sick pay
- Golden parachute payments
- Excludable reimbursed moving expenses
- Contributions to medical savings accounts or health savings accounts
- Non-statutory employee stock options
- Designated Roth contributions under 401(k) or 403(b) plans
Cost of employer-sponsored health coverage, using Code DD, according to the reporting requirements of the Affordable Care Act
Entries in Box 14 are for other deductions or compensation that must be disclosed to employees for their tax returns. For example
- After-tax pension
- Auto reimbursements
- Special taxes for California, New York, New Jersey, and Washington
- Charitable contributions deducted from employee pay
- Health insurance and fringe benefit deductions
- Uniform deductions (for the cost of uniforms)
- Union dues deductions
- Nontaxable income
- Vehicle expenses included in wages (100% of lease value of vehicle furnished to employee and included in Box 1 wages)
- There is also a box for "Other-not on list" items you have deducted from employees.
State and Local Information
In this section, you will enter information about state and local wages and withholding. Note that there is space for two states and two localities on the form. If an employee has worked in more than two states or localities during the year, use a second W-2 to include the additional information. Enter:
- Your two-letter state code and your business's state tax ID number (check with your state's department of revenue) (Box 15)
- State wages (Box 16)
- State income tax withheld (Box 17)
- Local wages, if any (Box 18)
- Local income tax withheld (Box 19)
- Locality name (Box 20)
Check for Accuracy!
If you don't report employee information correctly, you may be subject to fines and penalties. Make that the information on the forms is correct. Check with a payroll tax professional if you aren't sure what information should be included and where it should be included in the W-2 form.
Mailing W-2 Forms or Filing Online
If you are printing and mailing your own W-2 forms, you may obtain them from several sources.
- The IRS Forms Order website (takes 7-15 days)
- An online forms supplier or office supply store.
- Your tax preparer or payroll service
- Some business tax preparation software
You may NOT print out the W-2 forms from a webpage because Copy A can't be scanned.
You can file your W-2 form online with the Social Security Administration, by enrolling in the Business Services Online service. You MUST file online if you have 250 or more W-2s to file. If you are filing your W-2 forms online with the Social Security Administration, you don't need to include a W-3 transmittal form.
Distribute and File W-2 Forms
To the Employee: Copies B, C, 1, and 2
To the Social Security Administration - Copy A. The SSA requires that you send Copy A from each employee's W-2 by January 31 of the following year.
Keep Copy D for your records.
Tips on Preparing Form W-2
- Your business's state tax ID number is NOT your state sales tax ID number. Many states use the federal tax id number (EIN) and add digits onto the end. Check with your state department of revenue for information.
- Tip income. Employee tip income is subject to Social Security taxes and Medicare taxes, including the additional Medicare tax.
- Box 12 - More than 4 Items. If you have more than 4 items for Box 12, you will need to put the additional items on a second W-2. But don't include the employee's wage and withholding on this additional W-2.
- The SSA has a specific process for correcting W-2 errors, depending on the type of error. This article has information on how to correct W-2 errors.
Disclaimer: The information in this "How To" is for general purposes. It is not intended to be tax advice or to be detailed information on how to prepare this form. If you fail to record employee information correctly, you may be subject to fines and penalties. Get help from your tax professional to complete these forms.