Penalty for Employer Not Sending W2: Key Facts and Deadlines

Although tax season may feel far off, employers must remain vigilant regarding W-2 deadlines. The Wage and Tax Statement, commonly known as the W-2, is a critical document that employees require to accurately file their income tax returns. Timely distribution of W-2 forms is not just a legal obligation; it's also vital for maintaining positive employee relations.

Delays in providing these forms to employees can result in hefty fines, potential penalties, and a dip in workplace morale . This article will guide you through the key deadlines and civil or criminal penalties for an employer not sending a W-2.

We'll also discuss best practices for ensuring timely and accurate W-2 generation and distribution, helping you build trust with your employees and maintain compliance with the Internal Revenue Service (IRS) requirements.

Main Takeaways for Form W-2

• Employers can face heavy penalties for failing to provide W-2 forms to their employees by the January 31st deadline each year.
• Failing to meet the deadlines can result in penalties from the IRS, ranging from $60 to $580 per W-2, depending on the severity of the delay.
• Some states may have additional penalties for non-compliance.
• Paystubsnow offers a comprehensive payroll platform that simplifies W-2 generation and distribution, helping businesses stay compliant and maintain employee trust.

What Is Form W-2?

Form W-2, also known as the Wage and Tax Statement, is a tax document issued by employers to employees. It summarizes the total wages, federal income taxes, Social Security and Medicare taxes, and state and local income taxes (if applicable) withheld from an employee's paycheck throughout the year. Every employee uses this information to file their tax return accurately and claim deductions and credits.

Who Needs a W2 Form?

Employers are required to file a Form W-2 for every employee who earns $600 or more annually as remuneration. This includes full-time, part-time, and temporary employees, as well as those who receive bonuses, commissions, or other taxable income.

This federal document is fundamental for employees receiving compensation from employers subject to federal income tax withholding because it outlines their total income and details the taxes withheld from their paychecks over the calendar year. This information is crucial because it ensures employees can file their state and federal tax returns accurately.

Employees earning $599 or less generally do not require a W-2 form for tax filing purposes. This stipulation ensures that the requisite tax documentation is provided to those who have met the financial threshold mandated by law.

Key Deadlines for Sending W-2 Forms

There are two deadlines to be aware of when it comes to filing W-2 forms:

• Employee Deadline: Employers are required by law to furnish a copy of the W-2 form to each employee by January 31st of the following year. This allows employees ample time to gather their tax documents and file their returns on time.
• IRS Deadline: Employers must also electronically file copies of all W-2 forms with the Social Security Administration (SSA) by the same January 31st deadline. Paper filings can be submitted, but electronic filing is strongly encouraged by the IRS.

Extension Options

If you anticipate missing the January 31st deadline due to unforeseen circumstances, you can request an extension from the IRS by filing Form 8809, Application for Extension of Time to File Information Returns.

However, you should note that extensions are not guaranteed, so it's always ideal to aim for timely filing. Timely preparation is the best course of action if you want to get approval promptly and avoid legal hassles.

Penalties for Not Sending a W2

Missing the deadlines for W-2 submission can result in severe penalties for employers. Here's a breakdown of the consequences, specified by the type of non-compliance:

Failure to File Correct Information by Deadline

The severity of the penalty depends on how late the filing is. Here are the fines based on the filing delay:

• $60 per W-2 If Filed Within 30 days of the Due Date (Maximum $232,500 per Year for Small Businesses): While this may seem like a relatively small penalty per form, it can quickly add up for businesses with a large number of employees.
• $130 per W-2 If More Than 30 Days Late But Filed by August 1st: If the delay extends beyond 30 days but is resolved by August 1st, the penalty increases to $130 per form.
• $330 per W-2 If Filed After August 1st or Not Filed at All: The most severe penalty is imposed for W-2 forms that are not filed by August 1st or are not filed at all. This amounts to $330 per form.

Note: The IRS considers businesses with average annual revenue of $5 million or less over the past three years to be small businesses . If your business typically earns under $5 million annually, your potential penalty liability may be capped.

Failure to Provide W2 to Employees by the Deadline

Employers who fail to provide W-2 forms to their employees by the January 31st deadline face the following tiered penalties:

• $60 per W-2 If Not Provided Within 30 Days of the Due Date: This is the lowest penalty, but it can still add up quickly for businesses with a large number of employees.
• $130 per W-2 If Not Provided Within 30 Days But Before August 1st: If the delay extends beyond 30 days but is resolved by August 1st, the penalty increases to $130 per form.
• $330 per W-2 if not provided by August 1st or at all: The penalty imposed for W-2 forms that are not delivered to employees by August 1st or at all is $330 per form.

Intentional Disregard of W2 Requirements

If the IRS determines that an employer has willfully disregarded the requirements for filing W-2 forms, the penalties are even more severe. In such cases, the employer faces a fine of $630 per W-2 with no cap for large businesses. There is no maximum penalty amount, regardless of the size of the business.

This steep penalty serves as a powerful deterrent for employers who intentionally fail to comply with W-2 filing obligations. The IRS takes intentional disregard of W-2 requirements very seriously and may pursue legal actions and criminal penalties in addition to the financial penalties in severe cases.

State-Specific Penalties

While the IRS sets the federal guidelines for W-2 form filing and distribution, certain states also have their own rules and penalties for non-compliance. For instance, New York State imposes penalties for late tax returns, which can be 5% of the tax due for each month the return is late, up to a maximum of 25%.

The specific penalties in every state may differ. Employers should consult with their state's Department of Revenue or a tax professional to determine the exact penalties that apply in their jurisdiction.

Not Reporting Social Security and Medicare Taxes

Failing to report and pay Social Security tax and Medicare tax can result in significant penalties for employers. Here are some key penalties:

• Failure to File Penalties: If you fail to file the form, the penalties can range from 2% to 15% of the unpaid tax, depending on how late the filing is.
• Failure to Pay Penalties: If you collect Social Security, Medicare, or income tax from employees but fail to submit them to the IRS, the penalty can be 100% of the unpaid tax. This is known as the Trust Fund Recovery Penalty (TFRP).

In addition to the penalties, interest will accrue on the unpaid taxes until they are paid in full. For group health plans that do not comply with Medicare Secondary Payer (MSP) reporting requirements, the penalties can be as high as $1,000 per day for each day of non-compliance.

How to Avoid Penalties for Not Sending W2s

To prevent incurring penalties for late or missing W-2 forms, employers must adopt the following proactive strategies for timely preparation, accurate record-keeping, and efficient processing:

Timely Preparation

Plan ahead by starting the W-2 generation process ahead of the January 31st deadline. Gather necessary employee information, review tax laws, and address any discrepancies to ensure accurate form completion.

Double-check employee information before preparing W2 forms. Mistakes in employee records can lead to serious compliance issues. Ensuring that the information you have, such as Social Security numbers, addresses, and names, is up-to-date and accurate will streamline the W2 generation process. By verifying employee details early, you can avoid last-minute complications .

Accurate Record Keeping

Maintain detailed records of employee wages, hours worked, and tax withholdings throughout the year. Regularly updating and reviewing employee information helps ensure everything is correct when preparing W2s. This reduces the chance of errors that could result in penalties.

Employers should use digital tools and organized methods for managing data efficiently. By doing this, you can make tax filing easier and also build trust with your employees.

Using Payroll Software

Payroll software can be a valuable tool for employers to streamline the W-2 generation process and ensure compliance. These software solutions often automate many aspects of payroll, including W-2 form generation, filing, and distribution.

By using a reputable payroll software solution that is compliant with tax laws, employers can save time, reduce errors, and avoid penalties. Some payroll software providers like Paystubsnow offer features like electronic delivery of W-2 forms to employees, which can help ensure timely and secure delivery.

Employee Communication

Employers should inform employees about the importance of W-2 forms and the deadlines for their submission. This helps ensure that employees are aware of their responsibilities and can take the necessary steps to file their tax returns.

Provide copies of W-2 forms promptly to allow employees ample time for preparation and maintain a positive relationship with employees and the IRS.

Best Practices for W2 Generation and Distribution

To ensure timely and accurate W-2 form generation and distribution, employers should follow these best practices:

Double-Check Employee Information

Carefully review and verify employee information, including names, Social Security numbers, addresses, and other relevant details. Incorrect information can lead to delays and penalties. Regularly update employee records to reflect any changes in personal information.

Choose Electronic Filing

Utilize electronic filing to streamline the W-2 process, reduce errors, and ensure timely submission. Select a reputable e-filing service that is compliant with IRS regulations. Electronic filing is generally faster, more efficient, and less prone to errors than paper filing.

Secure Delivery Methods Keep Backup Copies

Consider electronic delivery methods, such as email or online portals, to ensure timely and secure delivery of W-2 forms to employees. If physical delivery is necessary, use certified mail or other secure methods. Keep backup copies of all W-2 forms and related files to guard against losing data or any accidental damage.

Automate the W-2 Process and Stay Compliant With Paystubsnow

Managing W-2 generation and distribution can be time-consuming and error-prone, but our software can eliminate the hassle.

Paystubsnow's user-friendly payroll platform automates the W-2 process, saving businesses valuable time and ensuring compliance with tax regulations. Here's how we simplify your W-2 management:

• Automated W-2 Generation: The platform generates accurate W-2 forms for all employees with a few clicks.
• Error Reduction: The risk of manual errors is greatly reduced as the platform automates data entry and calculations.
• Compliance Assurance: Paystubsnow stays up-to-date with all relevant tax laws and regulations, ensuring your W-2 forms are always compliant.
• Secure Delivery: You can directly send W-2 forms to employees electronically or download copies to send later.

Free yourself from the complexities of W-2 management and focus on what matters most—running your business .