Form W-2

Tax Basics: Form W-2

Once you’ve started hiring employees for your business, you’ll start filing Form W-2, Wages and Tax Statement, for each of your employees to report the wages you’ve paid them and taxes you’ve withheld.

How to Fill Out Form W-2

Boxes a thru f.

The first few boxes ask for basic information, like your employee’s social security number (SSN), name and address, and your employer identification number (EIN), name and address.

Box d asks for a control number, which is assigned by your payroll processing software. A control number is not required.

Boxes 1 & 2. Wages, tips, other compensation & Federal income tax withheld

In Box 1, you’ll include your employee’s annual wage and salary payments, but don’t include any elective deferrals, like contributions to a 401(k) or 403(b).

Include all federal income tax you’ve withheld from your employee’s paychecks in box 2.

Boxes 3 & 4. Social security wages & Social security tax withheld

You don’t have to withhold social security tax from all wages. For example, you can only collect social security tax on the first $127,200 your employee earns. Enter the wages subject to social security tax in Box 3.

In Box 4, you’ll enter social security tax withheld from your employee’s paychecks. The employee share of the social security tax is 6.2%.

Boxes 5 & 6. Medicare wages and tips & Medicare tax withheld

Like social security tax, not all wages are subject to Medicare tax. However, there is no maximum wages for the Medicare tax. Enter the wages subject to the Medicare tax in Box 5. If your employee made $127,200 or less during the year, Boxes 3 and 5 should be equal.

In Box 6, you’ll enter Medicare tax withheld from your employee’s paychecks. The employee share of the Medicare tax is 1.45%.

Box 7. Social security tips

In Box 7, report any tips your employee reported to you. The sum of Box 3 and 7 should not exceed $127,200.

Box 12.

Code A

Use code A to report social security tax on tips, from which you couldn’t collect the tax because the employee didn’t have enough funds from which to deduct. Don’t include this amount in Box 4.

Code B

Use code B to report Medicare tax on tips, from which you couldn’t collect the tax because the employee didn’t have enough funds from which to deduct. Don’t include this amount in Box 6.

Code C

Use code C to report the taxable cost of group-term life insurance over $50,000. Also include this amount in Boxes 1, 3, and 5.

Codes D through H, S, Y, AA, BB, EE

Use these codes to show elective deferrals and designated Roth contributions.

  • Code D: elective deferrals under a section 401(k) cash or deferred arrangement plan
  • Code E: elective deferrals under a section 403(b) salary reduction agreement
  • Code F: elective deferrals under a section 408(k)(6) salary reduction simplified employee pension (SEP)
  • Code G: elective deferrals and employer contributions, including non-elective deferrals, to any governmental or nongovernmental section 457(b) deferred compensation plan
  • Code H: elective deferrals under section 501(c)(18)(D) tax exempt organization plan – include this amount in Box 1.
  • Code S: employee salary reduction contributions under a section 408(p) simple plan
  • Code Y: deferrals under a section 409A nonqualified deferred compensation plan
  • Code AA: designated Roth contributions under a section 401(k) plan
  • Code BB: designated Roth contributions under a section 403(b) plan
  • Code EE: designated Roth contributions under a governmental section 457(b) plan

Code J

Use code J to report nontaxable sick pay, which is any sick pay paid by a third party and not included as income because the employee contributed to the sick pay plan. Don’t include nontaxable disability payments made directly by your state.

Code K

Use code K to report the 20% excise tax on excess golden parachute payments.

Code L

Use code L to report substantiated employee business expense reimbursements.

Code M

Use code M to report uncollected social security tax on the taxable cost of group-term life insurance over $50,000, for former employees. Use this code if you provided group-term life insurance coverage for periods during which the employment relationship no longer existed.

Code N

Use code N to report uncollected Medicare tax on the taxable cost of group-term life insurance over $50,000, for former employees. Use this code if you provided group-term life insurance coverage for periods during which the employment relationship no longer existed.

Code P

Use code P to report excludable moving expense reimbursements paid directly to your employee.

Code Q

Use code Q to report nontaxable combat pay.

Code R

Use code R to report your contributions to an Archer MSA.

Code T

Use code T to report the total you paid or reimbursed for qualified adoption expenses under an adoption assistance program.

Code V

Use code V to report income from the exercise of non-statutory stock options.

Code W

Use code W to report your contributions to a health savings account (HSA).

Code Z

Use code Z to report income under a nonqualified deferred compensation plan that fails to satisfy section 409A.

Code DD

Use code DD to report the cost of employer-sponsored health coverage. This amount is not taxable and represents the total of your and your employee’s contributions.

Code FF

Use code FF to report permitted benefits under qualified small-employer health reimbursement arrangements (QSEHRA). If the QSERHA provides reimbursements for only your employee, the maximum reimbursement is $4,950. If it also provides reimbursements for the employee’s family, the maximum is $10,000.

Box 13.

Statutory Employee

Check this box for statutory employees whose earnings are subject to social security and Medicare taxes, but not federal income tax withholding. Statutory employees are independent contractors under common-law rules, but are treated as employees by statute.

Retirement Plan

Check this box if your employee was an active participant in:

  1. a qualified pension, profit-sharing, or stock bonus plan described in section 401(a), including a 401(k) plan;
  2. an annuity plan described in section 403(a);
  3. an annuity contract or custodial account described in section 403(b);
  4. an SEP plan described in section 408(k);
  5. a simple retirement account described in section 408(p);
  6. a trust described in section 501(c)(18); or
  7. a plan for federal, state, or local government employees.

An employee is an active participant if they’re covered by

  1. a defined benefit plan for any tax year they’re eligible to participate in, or
  2. a defined contribution plan for any tax year that the employer and employee contributions are added to their account.

Box 14. Other

If you included 100% of a vehicle’s annual lease value in your employee’s income, report it here or in a separate statement to your employee. You can also use Box 14 to convey any other information you want to give your employee.

Boxes 15 thru 20.

Use Boxes 15 thru 20 to report any state and local tax information. In Box 15, enter the two-letter abbreviation for your state and your employer’s state identification number.

You can use this section to report wages and taxes for up to two states and two localities. If you need to report more than two, you’ll have to prepare a second W-2.

Form W-3

If you’re filing Forms W-2 by paper, you’ll also file Form W-3 with the forms.

When you’re completing Form W-3, put the number of forms you’re filing at one time in Box c. You’ll include the total wages paid to employees in Box 1, and total federal income tax withheld in box 2. You’ll include the total social security and Medicare wages paid, as well as total social security and Medicare taxes withheld, and you’ll include the total state or local wages paid and taxes withheld.

According to the IRS, “complete a Form W-3 Transmittal only when filing paper Copy A of Form(s) W-2, Wage and Tax Statement.” If you’re electronically filing your forms W-2, don’t file Form W-3 because the IRS and Social Security Administration (SSA) will receive the information automatically.

When to File

Your W-2 forms are due by January 31, 2018. You’ll send Copy A to the SSA, Copy 1 to your state, city, or local tax department, and Copies B, C, and 2 to your employee. Keep Copy D for your own records for four years.

Penalties for Filing Late

There are penalties for filing your Forms W-2 late:

Time Returns Filed/Furnished Penalty for Small Businesses (Gross Receipts of $5 million or less)
Not more than 30 days late (or by March 30 if due date is February 28) $50 per return with a $185,000 maximum
31 days late through August 1 $100 per return with a $532,000 maximum
After August 1, or not filed at all $260 per return with a $1,064,000 maximum
Intentional Disregard $530 per return with no maximum