It is the season for W-2s and 1099s and if you are unaware of these two crucial forms then this blog is the perfect place to be. While we have delved into 1099 in our previous blog this one right here is an information guide for W-2 and so without further ado let’s jump right-in:
Tax Season 2020-21: What Every Small Business Should Know About W-2 Form
What is Form W-2?
A W-2 form is an official Wage and tax statement that is furnished by an employer to both IRS and employee detailing the employee’s gross annual wages, Social Security and Medicare earning including the state and federal taxes withheld from the earnings.
Let us make it simpler: Every employer withholds state and federal taxes from an employee’s pay check. And at the start of every year, the employer has to inform how much a particular employee has earned in a year and how much was paid in taxes, to the federal government, state government and the employee himself.
Who files the Form W-2?
Every employer engaged in business or trade who pays the employee remuneration of more than $600 or more for the year must file the Form W-2 for each employee. IRS does make a distinction between contractors and employees. It’s up to the business to determine who the respective designation based on their services.
The W-2 must be filed and copies are to be sent to the employees before the end of January (or any date mentioned, for example, if an employer is reporting the income of the year 2020, the W-2 form must be prepared and issued to the IRS, Social Security Administration and the employee before the due date in January 31st.
What information does a W-2 include?
As said above the W-2 form includes separate sections for federal and state sections, details of the employer – EIN (Employer’s Identification Number) & Employers state ID number. All other fields are dedicated to scribe earnings for the year from the employer along with tax amount withheld, separate fields for money earned from different means also exist. (Tips for example). All the details of tax withholdings are noted and are deducted from the individual’s tax obligation during his tax filing.
Given the employer sends out the copies of the W-2 for both IRS and employees, the earning and tax details, the IRS makes use of this to track the income and tax liability of the employee. In case of any discrepancy, the IRS may audit the employee/taxpayer. If the tax withholding exceeds the tax amount owed by the employees to the IRS, he/she may receive it in the form of refund. To ensure everyone is one the same page, the W-2 contains multiple parts which are sent to all the parties involved, government, state & federal and employee.
What are the parts of Form W-2?
The W-2 is a multipart form that contains 6 forms which are slated for different destinations themselves, namely – Copy A, Copy B, Copy C, Copy D, and Copy 1 & Copy 2.
An employee receives three copies, Copy B, C & 2. While Copy B is attached to the federal income tax return in case of mailing. As for e-filing, Copy B has to be attached to other documents for at least 4 years, the same goes with Copy C which is the official copy of the taxpayer. Copy 2 is for the state tax return and as with Copy B, it must be kept with the tax documents for at least 4 years.
The other three forms of W-2 are the responsibility of the employer, Copy A is sent to the social security administration, Copy 1 to the state, city or locality and Copy D is for the employer’s records. Yes, there is going to be a whole lot of paperwork for the employers when it comes to W-2. From preparation of the forms (six of them for each employee), and mailing them in addition to all other critical tasks and administrative headaches during the tax season can be cumbersome and time-consuming. And this is where remote accounting firm like Outsourced Bookkeeping comes into the picture.
In addition to providing full-scale remote accounting services and tax preparation services, we have also been offering 1099 and W-2 preparation services for all types of businesses for years now. From procuring the forms to purchasing supplies, producing and printing the copies, reviewing, mailing and filing directly with IRS, the whole process will be accurately and efficiently performed by our team saving you’re your valuable money, time and resources in the process during this tax season for you. So if you are looking for outsourcing your 1099, W-2 reporting services, you can contact us here: https://www.outsourcedbookeeping.com/
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