Form W-2

What is a W-2 form?

A W-2 form is an official IRS tax document that employers must provide to each employee annually. It reports an employee’s total wages, tips, and other compensation, along with the taxes withheld throughout the year, including federal, Social Security, and Medicare taxes.

W-2 forms matter because they are essential for both tax reporting and employee tax filing. Employees use the W-2 to file their personal income tax returns, while employers use the same information to report payroll taxes to the IRS and Social Security Administration. Issuing accurate and timely W-2 forms is a legal obligation for businesses with employees—and a key part of responsible payroll management.

Why W-2 forms matter to businesses

The purpose of a W-2 form is to provide a clear, year-end summary of what a company paid its employees and what taxes were withheld on their behalf. It ensures transparency for employees and allows the government to verify that employers have withheld and paid the appropriate taxes.

For businesses, W-2 forms serve as both a compliance and operational tool. They reinforce trust with employees by clearly outlining their earnings and deductions. At the same time, they help employers stay compliant with IRS and state tax authorities. Employers must send copies of the W-2 to the employee, the IRS, and often the relevant state tax agency by January 31 each year.

Accurate W-2 reporting also helps businesses avoid penalties and audit risk. For example, failing to include accurate Social Security numbers or mismatched names can result in rejected forms and potential fines. Therefore, verifying employee information during onboarding and throughout the year is crucial.

Key considerations for handling W-2 forms

Handling W-2 forms correctly requires accuracy, consistency, and timely submission. Employers should collect and regularly verify key employee information such as name, Social Security Number, and current address. Payroll systems or providers should be updated with every compensation change or benefit adjustment throughout the year to ensure accurate year-end reporting.

Additionally, W-2 forms must be securely distributed—either by mail or electronically with employee consent. Companies should also retain W-2 records for a minimum of four years, as required by the IRS, in case of audits or wage disputes.

Key considerations include:

• W-2 forms are required for all employees earning $600+ annually.
  
  
• They summarise annual earnings and tax withholdings.
  
  
• Must be sent to employees and tax agencies by January 31.
  
  
• Errors or late filings can result in IRS penalties.
  
  
• Accurate recordkeeping and updated payroll data are essential.
  
  
• Electronic distribution is allowed with employee consent.