Find updates, deadlines, instructions, filing requirements, exemptions, and more in this comprehensive, box-wise guide on Form W-2.
As we all step into 2021 with hope and happiness, there is a certain responsibility that awaits our contribution – taxes.
With the commencement of tax season in 2021, all taxpayers must get ready to comply and contribute their just part to help the U.S. economy recover from the disaster, which was 2020.
Business taxpayers, especially employers must file Form W-2 to report any compensations made to their employees amounting to $600 or more in a tax year.
Sounds pretty easy, right? The redesigned Form, however, says otherwise.
There have been some major updates to the form and the elements involved in filing this tax form.
It is recommended that you are aware of these changes to comply with the IRS.
So, in order to help you get a better perspective about this essential tax form, we have put together everything you need to know about Form W-2 with the latest information in this blog. Do take a look at the updated Form W-2 here before you get started.
What Is Form W-2?
W-2 is a wage and tax statement form, which is used to report any kind of compensations made to employees by the employer. When employers pay wages, salaries, tips, bonuses, and more to their employees, such compensations have to be reported in this form. It’s important that employers file a Form W-2 for each employee to whom they make such compensations in the course of their business in a tax year.
What’s New For Form W-2
IRS general instructions for Form W-2.
Civil spouses of the servicemembers can elect the same residence as the servicemembers for tax purposes. According to the Military Spouses Residency Relief Act (MSRRA), civil spouses have the option to keep their domicile residence for tax purposes while they accompany their active service counterparts in their service residence.
Learn more about it here.
Clarification on code P reporting in Box 12
Box12 of the form requires taxpayers to only report the expense reimbursements paid directly to the member of the U.S. Armed Forces on the condition that they move to a different location per the military orders and/or change of station, both of which are excludable under section 132(g) of the Internal Revenue Code.
According to section 912 of the Internal Revenue Code and code P, employers must not report any excludable allowances.
Learn more about it here.
The IRS has upped the penalties for failure to file, intentional disregard, and non-failure to furnish Form W-2 due to adjustments for inflation. Filers are more likely to be penalized if their returns are to be filed after 31st December 2020.
Truncation Of Social Security Number (SSN) On Employee Copies Of Form W-2
Employers can now truncate the social security numbers in copies for the Form W-2 that will not be sent to the IRS and the social security administration.
So, employers can use Copy ‘B’ of the form to report Social Security Number in a truncated manner.
This is just for the convenience of the employer and the employee, and should not be practiced when filing the copies of Form W-2 to the IRS and Social Security Administration.
Awards compensating employees for lost wages are subject to Railroad Retirement Tax.
If you are a railroad employer and you have awarded your employee for the lost time due to an on-the-job injury, then you must withhold Tier 1 and Tier 2 taxes from such compensations.
The RRTA clearly specifies that any remuneration made is taxable as it stems from the “employer and employee” relationship.
Disaster Tax Relief
2020 has been a disastrous year for many with the Wildfires in California, Hurricane Delta, Hurricane Laura, Hurricane Zeta, and more such unprecedented natural disasters bringing a catastrophe with them. Thousands of U.S. residents lost their loved ones, property, and residence. Disaster tax relief is provided to those who have been affected by many such disasters in 2020.
Learn more about it here.
Deadline For Form W-2
There are no special due dates for paper or electronic filing. Both methods of filings have one common due date, which is the 1st of February 2021. So, all W-2 forms have to be submitted to the IRS on or by the 1st of February 2021.
Due Date Extension For Form W-2
The IRS did not explicitly provide any extension for Form W-2 due dates. However, if you think that you need more time, then you may request an extension with Form 8809.
Instructions For Form 8809
Useful link for instructions on Form 8809.
Please note that the IRS will not accept your W-2 due date extension application for a mere extension of the due date. The IRS requires a strong case or extraordinary circumstances or catastrophic situations, which require an extension of the due date for your specific case.
If you have enough evidence to back up your claim and your particular application cites an extraordinary reason for an extension, then the IRS is likely to accept your due date extension application.
Box-Wise Instructions For Form W-2 For The Tax Year 2020-2021
Before you proceed to the next section, we recommend taking a look at the Form W-2 online or print out a dummy copy of the form from this link. Cross-check the information for a better and easier understanding.
Note: You can download the form given in the above link for a general understanding. However, it is not authorized for filing. You can order any IRS form here.
Box 1: Wages, tips, other compensation
If you are an employer and paid wages, salaries, tips, bonuses, or any other compensation amounting to $600 or more to your employee, then all such taxable compensations have to be reported in this field. All you have to do is report the total of all compensations made.
Box 2: Federal income tax withheld
If you have withheld any federal income tax from your employee’s paycheck, then such an amount has to be reported here.
Box 3: Social security wages
The total amount of wages that are subject to social security taxes has to be reported here.
Box 4: Social security tax withheld
If you have withheld any social security taxes from your employee’s paycheck then such an amount has to be reported here.
Box 5: Medicare wages and tips
Wages and tips that are subject to Medicare tax have to be reported here.
Box 6: Medicare tax withheld
If you have withheld Medicare tax from your employee’s paycheck, then such an amount has to be reported in this box.
Box 7: Social security tips
Any tip income that your employee has earned from you must be reported here. Please note that this box can be left empty if social security tips were not received by your employee in the tax year.
Box 8: Allocated tips
Allocated tips are predetermined tip income, which is not a part of the wages or other fixed incomes that employers pay to their employees. If employers have “allocated” tip incomes for their employees, then such compensations have to be reported in this box.
Box 9: Reserved***
This box is for office purposes.
Box 10: Dependent care benefits
If you have paid any dependent care benefits, such as dependent care reimbursements or services, to your employee exceeding the $5000 limit, then such compensations have to be reported in this box.
Box 11: Nonqualified Plans
If you have distributed any payments to your employees, such as the non-qualified deferred compensation plan or a non-government Section 457 pension plan, then such compensations have to be reported in this box.
Box 12: Deferred Compensation & Other Compensation
Any deferred compensations and other compensations made to employees by their employers have to be reported in this box.
Box 13: Statutory Employee
In certain industries, independent contractors are treated as employees for tax purposes. When this happens, the independent contractor is no longer a vendor, but a statutory employee of the organization or the employer. If you have paid wages, salary, or other kinds of compensations to a statutory employee then checkmark this box in the form.
Box 13: Retirement Plan
If your employee is an active participant in a qualifying retirement plan, then checkmark this box in the form.
Box 13: Third-party Sick Pay
In some cases, a third party, such as an insurance company, covers the expenses of the employee for a certain period or under certain conditions. Only checkmark this box if a third party has paid the ‘sick pay’ of your employee. Employers can leave this blank if a third party has paid the expenses for your employee.
Box 14: Other
If you have withheld any of the following, then such an amount along with a brief description of the said amount has to be specified in this box.
- State disability insurance taxes withheld
- Union dues
- Uniform payments
- Health insurance premiums deducted
- Nontaxable income
- Educational assistance payments
- A member of the clergy’s parsonage allowance and utilities
- Charitable contributions made through payroll deduction
Railroad Employers Use Box 14 To Report:
- RRTA compensation
- Tier I tax
- Tier II tax
- Medicare tax
- Additional Medicare tax
Box 15: State Employer’s state ID number
If you are the employer, your state identification number and the state name must be reported here.
Box 16: State Wages, Tips, etc.
The amount of wages paid to an employee that is subject to state taxes must be reported in this box.
Box 17: State Income Tax
The total amount of tax withheld for the state must be reported here. Please note that the amount entered in Box 16 and Box 17 will differ.
Box 18: Local Wages, Tips, etc.
The amount of wages paid that are subject to local taxes must be reported in this box.
Box 19: Local Income Tax
The amount of tax withheld from your employee’s paycheck for the locality specified in Box 20 must be reported here.
Box 20: Locality Name
Provide a brief description of the locality for which you are withholding taxes from your employee’s pay.
And that’s the end of the form.
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