January: Start of a fresh new start. Time for New Years’ resolutions, coats and snow skiing. Hot chocolate and logs on the fire. Sounds dreamy, right? For our leisure life, perhaps.
But for our businesses, January is a busy month for bookkeepers! January signals all the end-of-year tax preparations necessary to comply with governmental regulations. Although some businesses are fiscal-year, most businesses are calendar-year based. This means that January is a crucial month for fulfilling several tax obligations.
In this short series, we will look at the maze of W2 and 1099 preparation (later in the series). Let’s begin with the basics of W2’s.
The Internal Revenue Service (IRS) adopted Form W2 years ago. It summarizes all the income and taxes necessary to be reported for Social Security, Medicare, and Federal Income tax purposes. Form W2 is used to report wages paid to employees, not independent contractors. Amounts paid to independent contractors will be covered later in this series.
A W2 is provided for each employee who has been paid wages through your company, regardless of the amount, the length of time they worked, full or part-time status or any other factor. Whether they worked one day or all years, each individual should receive a Form W2.
When these are all filed, each employee, the IRS, and the applicable states each receive their copies. A copy should be retained of all W2’s in the employer’s file.
Because of these requirements, each W2 is produced with multiple copies. When packets of W2’s are obtained from a vendor, or directly from the IRS, these should be marked with its proper destination. It’s best to send each copy as indicated to the proper recipient.
Prior to completing the W2’s, each employer should reconcile the totals per employee, and the summary totals of all W2’s combined, with their payroll and bookkeeping records and especially with the quarterly (or annual) payroll tax returns filed (either Forms 941 or Form 944). This is a very important step that bookkeepers should not miss.
If errors are discovered later, or discrepancies arise between the IRS and the Social Security Administration (SSA), these can be costly for bookkeepers and tax preparers. Employers should ensure that the W2’s are reconciled to all payroll records, both employer file copies and returns that were submitted to the government.
Once all individual W2’s are prepared and reconciled, a W3 is prepared, which captures the sum totals of all attached W2’s. The W3 asks for a few other particulars, such as the type of reporting, such as “Form 941.” Bookkeepers need to check the proper classification and that all boxes are properly completed.
Once completed and appropriately signed, Form W3 is submitted. The SSA copies of all W2’s, along with this Form W3, are then filed with the Social Security Administration either electronically or by mail. Specifics for the filing of this form are supplied in the Form W3 Instructions.
W2’s and W3’s should be typed, neat, and accurate. Ensure that your bookkeeper produces quality, clean copies and that all are properly completed and filed by the appropriate deadlines.
Although state deadlines vary by state and each employer is encouraged to verify their particular state’s requirements, federal regulations govern the issuance of W2’s and Form W3 for all 50 United States.
Employee copies are due to the employees no later than January 31st of each year. These may either be hand-delivered or postmarked by that date to comply with this regulation. The 2014 Copy A must be filed with the SSA no later than March 2, 2015 if mailed, or March 31, 2015 if electronically filed.
Next in this series, we will examine the Form W2 and explore its many boxes to ensure complete and accurate preparation.