In the hustle and bustle of year-end, even seasoned pros can overlook critical items. But you overlook W-2 formatting and filing errors at your peril.
Reminder: Beginning with forms filed next year, penalties for failing to timely file correct forms are more than doubling in many instances. So it pays to get your W-2s right the first time. Here’s help.
Step No. 1: Avoid common W-2 errors. Most W-2 errors are avoidable.
Bad: The Social Security Administration (SSA) will reject error-ridden submissions.
Key: Once a file is rejected, you become penalty bait as a nonfiler. The SSA’s Accuwage app checks your W-2s before you file them. It will also stop working if it finds many errors, thus preventing you from filing seriously incorrect forms in the first place. Point your browser to http://tinyurl.com/ssaaccuwage for this year-end app.
RESPONDING TO REJECTS: If you receive a rejection notice from the SSA in your email inbox, you must log onto its business services online portal to learn about your errors. You should also ensure that your paper resubmittals are timely.
Ticktock: Timeliness is determined by the date your original W-2s were filed and whether your resubmittals are properly identified.
Regardless of how you file your W-2s—on paper or electronically—be on the lookout for these common errors:
1. 941/W-2/W-3 matching errors. The data you report on your four 941s must match the totals on your W-2s/W-3. Also, ensure that the Employer Identification Number (EIN) that appears on your 941s matches the EIN that appears on your W-2s/W-3.
2. W-2 formatting errors. The SSA will reject W-2 files on which Record Identifier codes (e-filed forms), tax year, employment type and tax jurisdiction are incorrect.
3. Errors resulting in out-of-balance forms. Avoid these errors:
(1) using the Social Security wage base for a prior year
(2) using the Social Security wage base for Medicare wages
(3) misplaced decimals in boxes requiring monetary entries
(4) Social Security tax is greater than zero and Social Security wages are zero
(5) Medicare tax is greater than zero and Medicare wages are zero
(6) Medicare wages and tips are less than Social Security wages and tips, and
(7) trying to balance employees’ Medicare taxes with the employer’s Medicare taxes—there will be an imbalance for high earners who pay the additional Medicare tax, since there’s no employer matching contribution.
4. Employee name/formatting errors. Employees’ names/Social Security Numbers (SSNs) must match. Confirm that they do before you complete your W-2s by using the SSA’s online app—Social Security Number Verification Service.
Other problems: reversing employees’ first and last names, using titles or abbreviations and using symbols in the name fields (e.g., %, $, @). Compound names require a hyphen (e.g., Catherine L. Smith-Le-May). Single letter prefixes, (e.g., O or D) can’t be separated from the rest of the surname with a blank, but may take an apostrophe or be joined to the rest of the surname: OMalley or O’Malley.
5. W-2s for the year after an employee dies. Payments on behalf of a deceased employee made after the year of death are reported to the beneficiary or estate on Form 1099-MISC, in Box 3.
Step No. 2: Hit key deadlines. You have two small breaks this year-end season. Since Jan. 31 is a Sunday, employees must receive their W-2s by Feb. 1, 2016. Paper W-2 filers must be filed by Monday, Feb. 29; e-forms must be filed by March 31.
Step No. 3: File in the proper medium. The SSA reports that most W-2s are filed electronically. Nevertheless, if you’re filing fewer than 250 W-2s, you may file on paper. If you’re not using the IRS’ official red ink drop-out form, your forms must conform to the IRS’ specifications for substitutes (Copy A). If you’re using laser-printed W-2s, you must get the SSA’s approval. Questions regarding laser forms can be emailed to the SSA at copy.a.forms@ssa.gov.
Tips: When completing paper forms, ensure that data entries don’t overlap the VOID box. If you don’t have an employee’s SSN, write “Applied For” in Box a on all copies.
The SSA offers two electronic filing options.
Option No. 1: W-2 Online is a free app that allows you to create, save, print (for employees and your files) and file up to 50 W-2s per W-3, per session. After completing 50 forms, a W-3 is automatically generated.
Option No. 2: You may format your own files and upload those files to the SSA. The SSA’s file format specs are found in its 2015 EFW2 booklet. More information about W-2 Online and the 2015 EFW2 booklet is available at http://www.socialsecurity.gov/employer/.
STATE E-FILING MANDATES: States have their own W-2 e-filing thresholds and specifications. Download this chart showing those requirements. To get the full story, contact your state tax department.
A step-by-step payroll compliance guide to each pay period, month and calendar quarter of the year is now available. Download it free here.
