For us accountants January brings the greatest payroll function of the year; printing the year end payroll reports. These include the W-2’s, W-3 and Form 940. They all must tie to the combined total of the quarterly 941 reports and the deposits made to the Internal Revenue Service.
Each year the Internal Revenue Service requires employers to process the annual payroll reports by January 31. How do you process the W-2’s? The W-3? Form 940?
Whether you have one employee or 100, you total wages as reported in the four quarterly 941 reports must equal the combined total of all W-2 wages as reported in Line 1. In addition, total income taxes withheld from the paychecks should equal Line 2 of the combined W-2’s. Remember wages equals the gross wages paid less any allowed exclusions from wages including contributions to Section 125 plans or other amounts allowed to be excluded under the IRS Code.
Make sure that the total Social Security Wages equals the total reported via the quarterly 941 reports. If not, then verify each quarter for Form 941 that they are correct. If not, file Form 941-C to correct the reported amounts to the IRS. This also includes the Medicare wages and the amounts withheld for the Medicare Tax. It is possible for the Gross Wages to not match Social Security Wages and/or the Medicare Wages. The key is that the combined total for these three line items have to match what was reported via the quarterly Form 941’s. The most common reason for not matching is associated with running a payroll after the quarter ended in that quarter. Either some bonus check or a loan that is then incorporated as payroll is a suspected culprit. This is not uncommon and requires corrections filed with the IRS.
Once all the Line totals match, you have assurance that the W-2’s will be correct when printed. Once the W-2’s are printed go ahead and print the W-3 right away. The W-3 is the Transmittal of Wage and Tax Statements is nothing more than a cumulative total of the line items. This is the cover page that is submitted to the Social Security Administration with a copy of the W-2’s attached.
Once you have completed the W-2’s and the W-3, prepare the Form 940– Federal Unemployment Tax.
Please be sure to file the forms no later than January 31 to the following organizations/individuals:
Form W-2 and W-3 Social Security Administration
Form W-2 Employee batch to each employee
Form 940 Internal Revenue Service
There are state requirements to file a copy of the W-2 with your state. Please be sure to file these by the date of your state’s revenue department’s deadline. Most states require a compilation and reconciliation of the W-2’s to the amount of state income taxes withheld and paid.
If a former employee failed to update their address with you, you are only required to mail their W-2 to the last known address. If the W-2 comes back to you, you must retain the record for at least 3 years. More than likely the former employee will call you when they need to file their return and will ask you to mail the document to their current address. Note your files and you have complied with the Code.
If there is an error, the Social Security Administration will send a request to reconcile the quarterly reports to what your reported to them. This usually occurs about one year later. The most important thing to remember is paying the taxes. Make sure that all taxes have been paid and were paid on time.
If you have any questions or concerns, contact me via the comments section below and I’ll get back to you to help you out. Act on Knowledge.