If you are hiring a new individual, it is important to distinguish if the worker is an employee or an independent contractor. The distinction is important because it determines the kind of tax form your company should send to the person. If they are self-employed, or an independent contractor, you will send them a 1099 form. If the worker is an employee working for your company you will send a W-2 form.
What is a W-2 Form?
The IRS requires employers to report wage information for their employees on an IRS form called the W-2. A W-2 Form is a highly important tax document which shows the amount of taxes withheld from an employee’s paycheck. It is sent on a yearly basis and is used by the employee to file state and federal taxes. To ensure employees receive their W-2 forms in enough time to file their taxes businesses are required to send it to them no later than January 31st.
When do employers have to issue a W-2 Form?
According to IRS.gov:
Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer) from whom:
- Income, social security, or Medicare tax was withheld.
- Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate.
Summary of W-2 Obligations for Employers
- Form W-2 reports an employee’s annual earnings and the tax withholdings an employer made from an employee’s wages, salaries, and tips.
- As an employer, you must prepare a W-2 Form for each of your employees. Then, you must provide a copy of the form to the Social Security Administration (SAA), who will share the information with the IRS.
- You must mail or hand-deliver Forms W-2 to your employees no later than Jan. 31 of each tax year.