The federal government requires a business to file W-2 forms with the Social Security Administration for each employee, with an additional copy to the worker. The Internal Revenue Service prefers that businesses file electronically by registering with the Social Security Administration's online business services. Employers with 250 or more employees must e-file, while those with fewer workers are allowed to use paper. If a business files late or incorrectly, penalties may apply.
Employers may incur a penalty by not filing the requisite paperwork by the last day of February, or by April 2 if e-filing. The IRS also requires a W-3, Transmittal of Wage and Tax Statements, for each W-2. The employer may be penalized if important information is incorrect, such as the taxpayer identification number, surname or dollar amounts. Using paper if required to e-file or filing illegible forms may incur a penalty. Failing to give or mail W-2 forms to employees by the last day of January may incur a penalty as well.
Penalties for Large Businesses
For a business with gross annual receipts over $5 million, the penalty is $30 for each W-2 if the business makes the correction within 30 days of the due date, with a $250,000 yearly maximum. If filing after March 30 but on or before August 1, the fine becomes $60 for each W-2, with a $500,000 yearly maximum. If the business does not file at all or files later than August 1, it must pay $100 for each W-2, with a yearly maximum of $1,500,000.
Read More: Form 941 Penalties
Penalties for Small Businesses
A small business, as defined by the IRS, has average gross receipts no greater than $5 million for the three previous tax years. The maximum annual penalty for a small business for filing less than one month late is $75,000. The small business maximum for filing late but by August 1 is $200,000; after August 1, it is $500,000 per year.
Employers must give or mail correct W-2s to employees by the last day of January. If statements are late or incorrect, employers must pay the same penalties as for late or incorrect forms. This is in addition to the penalty for not filing correctly with the Social Security Administration.
Extensions and Exceptions
You can avoid penalties by filing Form 8809 with the Social Security Administration to request a 30-day extension. An employer is exempt from penalties for minor errors that do not prevent processing the form. In addition, a business does not have to pay a penalty if it can prove that circumstances beyond its control caused the error or omission.
Disregard and Fraud
A business that intentionally fails to file correct W-2s is subject to a minimum penalty of $250 per government copy, plus $250 per employee copy withheld. No maximum applies. If an employer intentionally files false W-2 forms on someone's account, that individual has the right to sue for $5,000 or more in damages.
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