Form W-2 Wage and Tax Statement: A Complete Guide for 2016

What the Form Is For

Form W-2, officially titled "Wage and Tax Statement," is one of the most important tax documents in the American tax system. Every employer must use this form to report how much money they paid their employees during the year, along with how much they withheld for federal income tax, Social Security, and Medicare taxes.

Think of Form W-2 as a year-end report card for your earnings and taxes. If you're an employee who received a paycheck in 2016, your employer was required to prepare a W-2 showing your total wages, tips, and other compensation, plus all the taxes taken out of your paychecks throughout the year. This information goes to three places: you (the employee), the Social Security Administration (SSA), and ultimately the Internal Revenue Service (IRS).

Employers must issue Form W-2 to any employee who earned $600 or more during the year, or to anyone from whom income tax, Social Security, or Medicare tax was withheld—even if the employee earned less than $600. The form comes in multiple copies: Copy A goes to the SSA, Copies B and C go to the employee for filing with their federal and state tax returns, Copy D stays with the employer for their records, and Copy 1 typically goes to state or local tax authorities.

IRS.gov

When You'd Use It (Including Late and Amended Filings)

For tax year 2016, the deadlines became significantly more stringent. Employers were required to furnish Forms W-2 to their employees by January 31, 2017—the same date the forms had to be filed with the Social Security Administration. This represented a major change from previous years when employers had until the end of February (or March 31 for electronic filers) to submit forms to the SSA.

This unified deadline was designed to combat tax fraud and identity theft by giving the IRS earlier access to wage data, allowing them to verify tax returns more quickly. Missing this deadline could result in substantial penalties, which we'll discuss later.

Late Filings: If you discovered you needed to file Form W-2 after the deadline passed, you should have filed it as soon as possible. The penalties for late filing increase the longer you wait—filing within 30 days of the deadline incurs a smaller penalty than filing after August 1 or not filing at all.

Amended/Corrected Filings: If you discovered an error on a Form W-2 you'd already filed—whether it was an incorrect Social Security number, wrong wage amount, or any other mistake—you needed to file Form W-2c (Corrected Wage and Tax Statement). This correction form should have been filed as quickly as possible after discovering the error. You file Form W-2c with Form W-3c (the transmittal form) to the SSA, and you must provide corrected copies to your employee as well.

Starting in 2016, extensions to file Form W-2 with the SSA were no longer automatic. You could request only one 30-day extension by filing Form 8809, but the IRS would grant it only in extraordinary circumstances such as a natural disaster or catastrophic event that destroyed your records.

IRS.gov

Key Rules and Changes Specific to 2016

Tax year 2016 brought several significant changes that employers needed to understand:

Accelerated Filing Deadline: The most dramatic change was moving the SSA filing deadline from late February/March to January 31—matching the employee furnishing deadline. This gave employers less time to prepare and file their W-2s.

Increased Penalties: Congress substantially increased penalties for late or incorrect filings. For returns required to be filed after December 31, 2015, penalties were indexed for inflation and set at:

• $50 per form if corrected within 30 days (up to $532,000 per year maximum)
• $100 per form if corrected between 30 days and August 1 (up to $1,596,500 maximum)
• $260 per form if corrected after August 1 or never filed (up to $3,193,000 maximum)
• At least $530 per form for intentional disregard (with no maximum penalty)

Small businesses faced lower maximum penalties but the per-form amounts remained the same.

New De Minimis Safe Harbor: To balance the stricter penalties, the IRS introduced a safe harbor for small errors. If an incorrect dollar amount on Form W-2 didn't differ from the correct amount by more than $100 (or $25 for tax withholding amounts), and the employee didn't request a corrected form, you weren't required to file a correction.

Electronic Filing Threshold: Employers filing 250 or more Forms W-2 were required to file electronically. Failure to e-file when required could trigger penalties.

Same-Sex Marriage Recognition: For federal tax purposes, marriages of same-sex couples were treated the same as opposite-sex marriages. The term "spouse" included individuals married to persons of the same sex, though registered domestic partnerships and civil unions not considered marriages under state law weren't included.

Health Coverage Reporting: Employers had to report the cost of employer-sponsored health coverage in Box 12 using code DD, though transitional relief applied to certain smaller employers.

IRS.gov

How to Complete Form W-2: Step-by-Step (High Level)

Overview

Completing Form W-2 involves gathering information from your payroll records throughout the year and accurately transferring it to the form. Here's the high-level process:

Step 1: Gather Your Information

Collect your Employer Identification Number (EIN), complete business name and address, and each employee's Social Security number, legal name, and address. Never use an Individual Taxpayer Identification Number (ITIN) in place of a Social Security Number on Form W-2.

Step 2: Calculate Total Compensation

Determine total wages, tips, and other compensation paid to each employee during 2016. This includes regular wages, bonuses, commissions, taxable fringe benefits, and other forms of compensation. Some items like qualified health plan contributions may be excludable.

Step 3: Determine Social Security and Medicare Wages

Calculate wages subject to Social Security tax (capped at $118,500 for 2016) and Medicare tax (no cap). These amounts may differ from Box 1 wages due to pre-tax deductions for items like 401(k) contributions and health insurance premiums.

Step 4: Calculate Taxes Withheld

Total up all federal income tax, Social Security tax, and Medicare tax withheld from the employee's paychecks throughout the year. Remember to include Additional Medicare Tax (0.9%) withheld on wages exceeding $200,000.

Step 5: Complete Special Boxes

Fill in Box 12 codes for items like 401(k) deferrals, health insurance premiums, and dependent care benefits. Check the retirement plan box in Box 13 if applicable. Complete state and local wage information in Boxes 15-20.

Step 6: Review for Accuracy

Common errors include mismatched names and Social Security numbers, incorrect calculations, and missing information. Double-check that Social Security wages aren't less than Medicare wages, and that tax amounts make sense relative to wages reported.

Step 7: File and Distribute

File Copy A with Form W-3 to the SSA by January 31, furnish Copies B, C, and 2 to employees by January 31, send Copy 1 to state/local authorities as required, and keep Copy D for your records for at least 4 years.

IRS.gov

Common Mistakes and How to Avoid Them

Incorrect or Missing Social Security Numbers

This is the most critical error. Always verify employee SSNs using the Social Security Administration's verification service. Don't truncate SSNs on Form W-2, and never accept an ITIN in place of an SSN for employee reporting.

Misformatted Employee Names

Enter the employee's first name and middle initial in the first box, surname in the second box, and suffix (Jr., Sr., III) in the optional third box. Make sure the name matches exactly what's on the employee's Social Security card.

Mathematical Errors

Social Security wages and tips should never be greater than Medicare wages and tips. Federal income tax withheld should be reasonable relative to wages reported. Social Security tax should equal 6.2% of Social Security wages (up to the wage base), and Medicare tax should equal 1.45% of Medicare wages.

Formatting Mistakes

Don't add dollar signs to money-amount boxes. Use 12-point Courier font if possible. Make entries large enough to read but not so large they run into adjacent boxes. Use only black ink on paper forms.

Inappropriate Retirement Plan Checkbox

Don't check the "Retirement plan" box in Box 13 unless the employee was an active participant in an employer-sponsored retirement plan during 2016. This box has specific tax implications for the employee's IRA deduction eligibility.

Physical Form Errors

Never cut, fold, or staple Copy A when mailing to the SSA. These forms are machine-read, and damage interferes with processing. Don't download Copy A from IRS.gov and print it—the SSA only accepts official red-ink versions or approved substitutes.

Downloading Instead of E-filing or Using Official Forms

Copy A of Forms W-2 and W-3 must be filed electronically or on official IRS red-ink forms (or approved substitutes meeting specifications in Publication 1141). Downloaded and printed forms aren't acceptable.

Missing or Late Extensions

Don't assume you can file late. Extensions are no longer automatic and are granted only for extraordinary circumstances. Request extensions before the deadline using Form 8809.

IRS.gov

What Happens After You File

Once you submit Forms W-2 and W-3 to the Social Security Administration, several things occur:

SSA Processing: The SSA processes the wage information and posts earnings to each employee's Social Security earnings record. This information determines future Social Security and Medicare benefit eligibility and amounts. The SSA performs automated checks—for example, rejecting forms where Social Security wages exceed Medicare wages, or where taxes are reported but wages are zero.

IRS Data Matching: After the SSA processes your submission, they transmit federal tax information to the IRS. The IRS uses this data to verify information reported on individual tax returns. When employees file their tax returns and enter W-2 information, the IRS computer systems compare the data. Mismatches can trigger notices, delayed refunds, or audits.

Employee Tax Filing: Employees use the information on their W-2s (Copies B and C) to prepare their federal and state income tax returns. Box 1 (wages) goes on their Form 1040, while boxes showing withheld taxes are claimed as credits against their tax liability. If too much tax was withheld, they receive a refund; if too little, they owe additional tax.

Record Retention: You must keep Copy D and a copy of Form W-3 for at least 4 years. These records should be available if the IRS or SSA has questions, or if an employee disputes the information reported. Undeliverable employee copies should also be retained for 4 years, unless you can produce them electronically through April 15 of the fourth year after the year in question.

Potential Follow-up: If the SSA or IRS identifies problems with your submission, they'll contact you by mail. This might request corrections, clarifications, or payment of penalties. Respond promptly to any correspondence and correct errors by filing Forms W-2c and W-3c.

State and Local Processing: If you filed Copy 1 with state or local tax authorities, they use the information for state income tax administration, including verifying state tax returns and ensuring proper withholding compliance.

IRS.gov

FAQs

1. What's the difference between Form W-2 and Form W-3?

Form W-2 reports wage and tax information for an individual employee, while Form W-3 is a transmittal form that summarizes all the W-2s you're submitting to the Social Security Administration. Think of W-3 as a cover sheet—it shows totals for all employees and tells the SSA how many W-2 forms you're filing. You need both forms, even if you're only filing one W-2.

2. Can I file Form W-2 electronically, and is it required?

Yes, you can file electronically through the SSA's Business Services Online (BSO) system. E-filing is required if you're filing 250 or more Forms W-2. Even if you're below that threshold, e-filing is encouraged because it's faster, more accurate, and you receive immediate confirmation of receipt. The BSO system creates Form W-3 automatically based on your W-2 data.

3. What if an employee loses their W-2 or claims they never received it?

First, verify that you sent it to the correct address. If more than 30 days have passed since the January 31 deadline and the employee still doesn't have their W-2, you should issue a duplicate. Mark it clearly as "Reissued Statement" for your records. The employee can also request a wage and income transcript from the IRS by filing Form 4506-T, or order a copy of their complete return (including W-2) using Form 4506 with a $30 fee, though IRS transcripts typically aren't available until mid-to-late February.

4. What should employees do if their W-2 has an error?

Employees should contact their employer immediately to request a corrected Form W-2c. Don't file your tax return using incorrect information. If your employer doesn't provide a corrected form by late February, you can call the IRS at 1-800-829-1040, and the IRS will contact your employer. In the meantime, you can file your return using Form 4852 (Substitute for Form W-2) if you need to file by the April deadline, though this may delay your refund processing.

5. Why are my Social Security wages different from my total wages in Box 1?

This is normal. Box 1 (federal wages) includes all taxable compensation for income tax purposes. Box 3 (Social Security wages) may be different because: (a) amounts over the Social Security wage base ($118,500 for 2016) aren't subject to Social Security tax, and (b) some pre-tax deductions reduce Box 1 but not Box 3, while others reduce both. Common examples include 401(k) contributions (reduce Box 1 but not Box 3) and health insurance premiums (reduce both boxes).

6. Do household employers have to file Form W-2?

Yes. If you paid a household employee (housekeeper, nanny, caregiver, etc.) $2,000 or more in cash wages during 2016, or you withheld federal income tax from their pay at their request, you must file Form W-2. Use the "Hshld. emp." checkbox on Form W-3 and report these wages using Schedule H (Form 1040), not Form 941. Household employers must obtain an EIN—you cannot use your Social Security number for this purpose.

7. What happens if I miss the January 31 filing deadline?

File as soon as possible. The penalty structure is tiered: $50 per form if you file within 30 days of the deadline, $100 per form if you file more than 30 days late but by August 1, and $260 per form if you file after August 1 or don't file at all. Small businesses have lower maximum penalties but the same per-form amounts. For intentional disregard, penalties start at $530 per form with no maximum. The only way to avoid these penalties is to show reasonable cause for the delay, such as a natural disaster.

IRS.gov

Additional Resources

• IRS Publication 15 (Circular E), Employer's Tax Guide
• IRS Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3
• Social Security Administration's Business Services Online
• IRS Information Returns Customer Service: 1-866-455-7438