A Definitive Guide To Form W-2 Penalties For Employers
Filing your tax forms correctly and on time is essential to avoid costly Internal Revenue Service (IRS) penalties.
The W-2 wage and tax statement is one of the most common documents that need to be filed by employers for each of their employees.
Failing to do so can be damaging—both financially and to your professional reputation.
In this article, we’ll take a closer look at the penalties you can receive for not filing a W-2 form correctly, what to do if you get a penalty notice, and how to avoid them in the future.
Firstly, What Is a W-2 Form?
The IRS W-2 form is used to report wages and taxes withheld from an employee’s paycheck for the year. Employees need this form to file their federal and state tax returns.
Employers are responsible for completing and sending each employee a W-2 form each year.
The IRS requires employers to send these forms to employees with enough time left to file it before the tax deadline—whether they choose electronic or paper filing methods.
They must also complete and file a W-2 form as part of the business’s employee tax returns.
For each employee that was paid at least $600 in wages that year—even if no taxes were withheld—employers must also file a copy of Form W-2 with the Social Security Administration (SSA).
The deadline for employers to file a Form W-2 is January 31st of the following year. You only have to submit this form to state tax authorities once at the end of the tax year.
What information is included on a W-2 form?
The information included on a W-2 form must be entered correctly and as accurately as possible. This typically includes:
- Employer identification number, name, address, and zip code.
- Employer’s state ID number.
- Employee’s full name and surname.
- Employee’s Social Security Number (SSN).
- Employee’s wages, tips, compensation, and all federal income tax withheld.
- Social security tax.
- Medicare tax.
- Social security tips.
- Dependent care benefits.
- Nonqualified plans.
- State wages, tips, and state income tax
- Local wages, tips, and local income tax
- Locality name.
Although the form is easy to complete once you have all the necessary information, mistakes are common. Make sure that you avoid the following errors to prevent penalties:
- Completing the form with the incorrect employee name and tax number.
- Using titles and abbreviations in the wrong fields on the form.
- Not using black ink.
- Forgetting to include the Employer Identification Number (EIN).
Are There Penalties for Filing a Form W-2 Incorrectly?
There are three main reasons why you might be penalized after you’ve filed your W-2 form. These are:
- Failing to file your tax returns by the deadline.
- Filling out the form with incorrect information or using the information in the wrong fields.
- Paying your tax return in the wrong way.
- Filing paper forms when the IRS requires electronic copies.
The most common W-2-related penalties are for employees forgetting to file it or employers failing to send the form to employees altogether.
This can result in monetary penalties of up to $60 per form for employees and $310 for businesses.
Failing to send W-2s to your employees can also result in steep monetary fines that will be determined by the gross receipts (income) of your business.
Another cause of W-2 penalties is filling out the form incorrectly and making mistakes with your employee information.
Errors on a W-2 form also result in monetary penalties of up to $310 per form if you fail to correct them and file a new document with the IRS. If you are a small business owner, the maximum penalties may differ.
The third reason that you may receive a W-2 penalty is for paying your tax return incorrectly. This may happen because of misreporting or incorrectly calculating tax credit.
While there is no monetary penalty for calculating and paying or receiving the incorrect amount for your tax return, you may encounter other difficulties.
We’ll take a closer look at what these are a bit later.
|Understanding The Different W-2 Copies
There are multiple copies of the W-2 forms that must be filed together.
Copy A is sent to the Social Security Administration (SSA) along with a form W-3.
Copy B is used for reporting federal income taxes.
Copy C and D are for personal record-keeping.
Copy 1 is issued to any applicable state, city, or local tax department to indicate payable taxes.
Copy 2 is used to report state, city, or local income tax and is filed with the relevant taxing authorities.
Some of these copies—like copy A—have to be submitted in a red ink form and cannot be printed from a standard home printer. The form has to be printed with this special ink so that it can be readable by the IRS scannable machines.
Although Form Pros doesn’t offer the red ink copy, you can order it directly from the IRS or file it electronically.
Are there exceptions for W-2 penalties?
According to the IRS, there are a few situations where errors on W-2 forms won’t result in penalties. These are:
- You have proof of reasonable cause for failing to submit the forms, such as an event beyond your control that was significant enough to cause this error. You must also be able to show that you’ve acted responsibly and taken steps to avoid this in the future to avoid late filing penalties.
- Missing or incorrect information is insignificant and won’t hinder the IRS from processing the tax return.
- Calculation errors that fall within a ‘safe harbor’ amount—usually no more than a $100 difference—will not be penalized.
You can visit the IRS website for more information on specific penalties and amounts.
What Happens If You Receive a W-2 Penalty?
If the IRS picks up an error on your W-2 form, they will send you a written notice to inform you of the mistake.
It’s important to carefully note what the penalties are for and what you need to do to correct them. This can help you avoid further and steeper penalties.
Once you receive a notice of a penalty, you’ll have an opportunity to re-file your W-2 forms on a new deadline. You must ensure that you do this by the due date to avoid further action.
Employees can also report their employers to the IRS if they don’t receive their W-2 forms. Other than penalties, this can result in any of the following:
- IRS audit: While the IRS may excuse some delays for reasonable causes, purposeful delays aren’t tolerated and could result in an audit of your business. This means IRS officers will analyze your historical and financial records to determine if there have been other tax-related faults or fraudulent activity. They may also take feedback from your employees. If they find enough incriminating evidence, they can shut your business down.
- Unwanted federal attention: Repeatedly failing to file your W-2 or other tax forms on time will cause the IRS to pay closer attention to your business. This can result in increased difficulties in filing your taxes smoothly and it may reflect poorly on your business.
Will a penalty affect your tax return?
If the IRS has informed you about a penalty regarding your W-2 form, it’s important to respond as soon as possible.
Employers that delay a response may have to pay additional taxes and can even receive more penalties. Your employees may also receive a return amount that is less than they expected.
If you don’t address your tax errors at all you may forfeit your tax return and not receive anything at all.
What Should You Do After You’ve Received a Penalty?
You don’t have to panic if you’ve received a W-2 penalty notice. The IRS usually grants extensions to people who need to correct mistakes before they impose the penalty.
Only when you fail to make the corrections will the IRS require payment and take further action that may affect your tax return.
Here are a few steps that you can take to ensure you handle a W-2 penalty professionally.
Request an extension deadline
The first thing you should do is to request an extension deadline with the IRS. They will usually grant you 30 days, during which you need to correct your mistakes and file the right forms.
To file for an extension, you must complete Form 8809 and mail it to the IRS.
You can only request an extension once, and you will have to mail your forms this time—electronic filing isn’t available for extensions.
Keeping track of deadlines is also important because your first tax payments will shift back.
File the correct forms on the right date
Once you’ve been granted an extension, make sure you file the forms on time.
Remember that you can only request an extension once, and failing to meet it may result in steeper penalties.
Contact your human resources department
Employees can report their employers to the IRS if they haven’t received their W-2 forms by February 1st.
If you have made mistakes on employees’ W-2 forms or you’ve forgotten to send them out, it’s important to notify the relevant people of your error as soon as possible.
You’ll also need to inform your employees about the situation and indicate that there may be delays in processing their tax returns.
You should also notify any other relevant personnel, like your payroll provider, about incomplete forms or assessed penalties.
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