As the final months of 2021 arrive, it is time to start thinking about next year’s tax season. This means verifying employee information to ensure accuracy when issuing W-2s.
Ensuring accuracy on W-2s is crucial as it can save your small business time and money. The IRS can fine employers for issuing W-2s after the deadline of January 31 or with incorrect or missing information, so it is necessary to complete these forms accurately the first time.
It is the employer’s responsibility to ensure the accuracy of W2s. This responsibility can be frustrating. Sometimes employees misreport data upon accepting a position. Sometimes they move or get married and neglect to disclose this to their employer. Employers must be diligent in correcting this information.
While this may feel like an abundance of information to verify for each employee, if you know what common mistakes to look out for, taking these extra steps now will save your small business the time and hassle of reissuing W-2s later.
Here are six common errors to avoid when issuing W2-s:
1. Incorrect spelling or format of names.
When filing W-2s, it is vital to verify the spelling of each employee’s legal name. The IRS could have difficulty verifying an employee’s tax information if their name has a typo in it. Furthermore, it is essential to avoid using nicknames in this field. While this may seem obvious, you may be surprised by how many of your employees may be using aliases. Year-end is the time to separate the Johns in your small business from the Johnathan’s.
2. Incorrect social security numbers.
Ensuring each employee’s social security number is correctly reported on their W-2 is immensely important. An employee’s social security number is what connects them to all of their tax information. It ensures they can adequately file their taxes, so providing this piece of information is accurate is crucial. When verifying social security numbers, ensure the proper number of digits (9) is listed.
3. Incorrect employer identification number (EIN).
The IRS uses your EIN to identify your small business and all of your employees who pay taxes. It is essential to verify the EIN for your small business is correct on each employee’s W-2 that you issue. Discrepancies could cause the IRS to issue a fine.
4. Incorrect addresses.
Verifying each employee’s address before issuing their W-2 is vital for two reasons. Employers mailing W-2s will want to ensure accurate addresses so that employees can receive them and receive them timely. If the employee’s address is wrong or needs updating, it could impact the local tax withholdings. Take special care to verify each employee’s zip code matches the town or city they live in and has the appropriate number of digits.
5. An incorrect number of dependents.
Employees may get married or have children throughout the year and neglect to update their employer. Employees that have had a status change should complete a W-4 form if they have gotten married, had children, or had another life-changing event. Updating a W-4 will ensure 2022 withholdings are accurate. It will not impact 2021 taxes. NOTE: A new W-4 is NOT required every year. Only when there is a life-changing event.
6. Incorrect taxable income.
Since the taxable income listed on each employee’s W-2 directly determines how much they will pay in tax, it is crucial to verify this number is accurate.
- Ensure that all paychecks an employee receives for work performed from January 1, 2021, to December 31, 2021, are dated for 2021 if they should be included in 2021 wages.
- W-2 should include cash bonuses.
- Include fringe benefits. Typical fringe benefits include personal use of a company car, group life insurance over $50,000, and moving or housing allowances not previously reported.
- Employee deductions, including insurance, should be handled correctly. Validate if deductions should be pre or post-tax, as well as verify the premiums.
As you begin to file W-2s, here are a few other essential tips to keep in mind:
- Never hand-write W-2s
- Always use black printer-ink when completing W-2s
- Ensure you are using the most recent W-2 form
Employers with complicated situations should contact their accounting firm or payroll provider as needed.
As 2021 comes to a close, do not become intimidated by the amount of information you must verify. This quick verification process can be an opportunity to connect one-on-one with each employee.
While verifying this information for each employee may feel like a long, tedious process, it has the potential to save your small business time and money in the long run, allowing you to avoid filing W-2Cs and paying unnecessary fines to the IRS. You will be thankful, and so will your employees, that you took the extra time today to verify this critical information.
Finish the year off strong. You’ve got this! Now is the best time to get organized for the new year ahead.
PaySmart is a payroll provider located in Mechanicsburg, Pennsylvania, supporting small businesses in the Central PA region. The readers of Central Penn Business Journal have voted us The Best Payroll Provider! We are dedicated to helping small businesses take care of their payroll needs. To learn more information about how PaySmart may provide payroll solutions, please get in touch with us at 717-766-1777. Our New Client Concierge is waiting for you!