How to Prepare a W-2 for an Employee

All employers must report wages, tax withholdings and other vital information regarding each employee on a form W-2 sent to the employee and the government.

Instructions

Difficulty: Moderately challenging

Things You’ll Need:

• W-2 And W-3 Forms
• Ledger Books
• Calculators
• Typewriters
• EIN
• Accounting Services
• Business Services
• Postage Stamps
• Envelopes
• Office Supplies
• Office Software
• Spreadsheet Softwares

1. Determine a worker is an employee and not an independent contractor. Information on an employee goes on the W-2. Information on a contractor goes on Form 1099-MISC.
2. Obtain forms W-2 and W-3 from the IRS.
3. Type your Employer Identification Number (EIN) in box b.
4. Type your name, address and zip code in box c.
5. Type the employee's Social Security number in box d.
6. Type the employee's full name in box e and address in box f.
7. Fill in box 1 with the amount of wages, tips and other compensation the employee received when working for you.
8. Fill in box 3 with the amount of wages the employee received from you that is subject to Social Security taxes. This amount is usually the same as the amount in box 1. However, it could be more, as when the employee has deferred compensation. Or, it could be less, as when the employee has fringe benefits that are taxable, but not subject to Social Security taxes. Also, for 2000, the maximum wages subject to Social Security taxes is $76,200.
9. Fill in box 5 with the amount of wages the employee received from you that is subject to Medicare taxes. This amount is usually the same as the amount in box 3, except there is no maximum amount subject to Medicare taxes.
10. Type the amount of federal income tax you have withheld for the employee in box 2.
11. Type the amount of Social Security tax you have withheld for the employee in box 4. This should equal 6.2% of the amount in box 3.
12. Type the amount of Medicare tax you have withheld for the employee in box 6. This should equal 1.45% of the amount in box 5.
13. Fill in box 7 with the amount of tips your employee has reported to you. This is applicable primarily if your employee is a food server. The amount in box 7 should have been included in boxes 1, 3 and 5.
14. Fill in box 8 with the amount of allocated tips you have allocated to your employee. This is applicable when your restaurant's workers are presumed to have underreported tips. This amount is not included in boxes 1, 3, 5 or 7.
15. Fill in box 9 if your employee has received advanced payments of Earned Income Credit.
16. Fill in box 10 if you have provided dependent care benefits to your employee. Any amount over $5000 should be included in box 1.
17. Type in any amount distributed to your employee from a nonqualified pension plan or nonqualified deferred compensation plan in box 11. This amount should be included in box 1.
18. Type the amount of any taxable fringe benefits paid to your employee in box 12. This amount should be included in box 1.
19. Type in box 13 the letter code (A through T) and the amount of certain special money actions that need to be reported. See the back of copy C of the W-2 for codes and explanations. Deferred compensation plans, certain uncollected Social Security and Medicare taxes, reimbursements for moving expenses or employee business expenses, adoption benefits, medical savings accounts and a few other items need to be reported here.
20. Fill in box 14 with other information relating to money and your employee that is not relevant to any other box. This is a catch-all information spot.
21. Check any of the little squares in box 15 that are relevant. Be sure to check the little squares if the employee has a pension plan and/or a deferred compensation plan with you.
22. Type the two-letter state code for your home state at the beginning of box 16. Then type your Employer's state I.D. number, which is often the same as your Employer Identification Number (EIN).
23. Fill in box 17 with the amount of wages and compensation paid to the employee in the state. This is usually the same as the amount in box 1. If the employee worked for you in two states, list the states separately and allocate the wages to each state.
24. Fill in box 18 with the amount of state income tax withheld for the employee.
25. Type in box 19 the name of any local government entity for which you had to withhold taxes for your employee. This is typically for a city income tax or state disability tax.
26. Type in boxes 20 and 21 the amount of wages subject to the local government tax and the withholding of such tax you have done for your employee.
27. Send copies B, C and 2 to your employee by no later than January 31, 2001.
28. Send copy A to the Social Security Administration by no later than February 28, 2001. It must be accompanied by form W-3, the Transmittal of Wage and Tax Statements, which is information on all of the W-2s for all your employees. If you are filing electronically, the due date is March 31, 2001.
29. Send copy 1 to the state department of tax revenue by no later than February 28, 2001.
30. Keep copy D for your records. You should keep these for at least 3 years.

Tips & Warnings

• Be aware that your employees are subject to Medicare tax of 1.45% on all wages and compensation. There is no maximum limit, as there is on Social Security tax.
• Writing the correct Social Security number for your employee is vital. Wrong Social Security numbers are the single, most common mistake that employers make on W-2s. Avoid the hassle for yourself and your employees by paying attention.
• If you have overwithheld the Social Security taxes on your employee - most commonly, by withholding taxes on more than $76,200, - you will have to pay him back directly if you are his only employer during the year. The IRS will give him credit for such overpayment only if he has more than one employer. Be fair to your workers.
• Box 13 and Box 14 are for information only. The information is still important, so you need to do it correctly. If you are unsure as to what to include, err on the side of too much information rather than too little.
• Don't forget that you are responsible to pay an equal amount during the year of the Social Security and Medicare taxes for your employee. The employee pays 6.2% for Social Security taxes (up to the maximum) and 1.45% for Medicare taxes (with no limit), and you must pay an equal amount.
• Handwrite a W-2 only if you have no access to a typewriter. If you make an error, use a new form rather than crossing out or writing over an incorrect entry.