Question

Define each, explain the purpose and who uses them:
W-2
W-3
Also describe the steps to complete each form.

Answer 1

Form W-2 (Wage and Tax Statement) is an Internal Revenue Service (IRS) tax form used in the United States to report wages paid to employees and the taxes withheld from them.[1] Employers must complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship. An employer must mail out the Form W-2 to employees on or before January 31. This deadline gives these taxpayers about 2 months to prepare their returns before the April 15 income tax due date. The form is also used to report FICA taxes to the Social Security Administration.

Parts and steps of the W-2

The parts of this form and what they are used for

Copy A goes to the Social Security Administration (SSA). Copy A is usually printed on a red form.

Copy 1 is for the city, state or locality

Copy B is for filing with the employee's federal tax return

Copy C is for the employee's records

Copy 2 is another copy for another city, state, or locality

Copy D is for the employer's records.2

How to Prepare Form W-2

This information is a general overview of the process for completing a W-2 form. See the Instructions for Form W-2 for more details.

Employer information: For each W-2 you prepare, you will need to include information about your business, including employer ID number (EIN) and employer name and address.

Control number: You may want to add an internal control number on each W-2 if you are paying many employees. You can generate the number yourself, or your payroll preparation software may generate this number.

​Employee earnings:

Total wages, tips, and other compensation (Box 1). This is gross pay for all hourly and salaried employees.

Total amount of withholding(Box 2)

Total Social Security wages (up to the Social Security maximum)(Box 3).2

Social Security wages and Medicare wages may be different from total wages in Box 1. Some pay is not included in Social Security or Medicare wages, so you may need to reduce the entry in Box 3 and Box 5 by these amounts.

Total Social Security Tax Withheld (Box 4)

Total Medicare wages and tips (Box 5)

Medicare tax withheld (Box 6). This amount includes the amount of additional Medicare tax for higher-paid employees.

Social Security tips (Box 7) and allocated tips(Box 8) (Check to make sure you separate reported tips from allocated tips.)2

Next, you will need information about employees and total wages and withholding for each employee for last year:

Other payments. You may have paid advance EIC payments (earned income credit)(Box 9) and dependent care benefits (Box 10) paid to employees.

Information on Retirement Plan Participation, Statutory Employees

On each W-2 you must check the appropriate box if the employee participates in a retirement plan (Box 13) or a non-qualified plan (Box 11), if this employee is a statutory employee (Box 13), or if the employee received third-party sick pay (Box 13.

Box 12

Box 12 is for amounts for other compensation or reporting. You can enter up to 4 types of compensation. Some of the most common information items for Box 12:

Uncollected Social Security, RRTA (railroad retirement), or Medicare tax, on tips or group life insurance

Elective deferrals to 401(k), 403(b), and other qualified retirement plans

Non-taxable sick pay

Golden parachute payments

Excludable reimbursed moving expenses

Contributions to medical savings accounts or health savings accounts

Non-statutory employee stock options

Designated Roth contributions under 401(k) or 403(b) plans2

Cost of employer-sponsored health coverage, using Code DD, according to the reporting requirements of the Affordable Care Act

Box 14

Entries in Box 14 are for other deductions or compensation that must be disclosed to employees for their tax returns. For example

After-tax pension

Auto reimbursements

Special taxes for California, New York, New Jersey, and Washington

Charitable contributions deducted from employee pay

Health insurance and fringe benefit deductions

Uniform deductions (for cost of uniforms)

Union dues deductions

Nontaxable income

Vehicle expenses included in wages (100% of lease value of vehicle furnished to employee and included in Box 1 wages)

There is also a box for "Other-not on list" items you have deducted from employees

W-3 Transmittal of Wage and Tax Statements

Step 1: Start ezW2 software.

Step 2: Set up company information for W2 reporting

You can access this screen by clicking the top menu “Current Company->Company”. You need to enter the general company information for w2 and 1099 forms, such as Company Name, Address, Tax ID and others.

Step 3: Set up W-3 information

You can access this screen by clicking the top menu “Current Company->W-3 information”. You need to enter the W-3 control number, W3 Establishment Number, Contact Information and others. This information will be displayed on both forms W-2 and W-3.

Step 4: Add Dummy Employees

To make the value of Box C on your W-3 correct, you need to enter the dummy employee here. You can add the dummy employees manually or you can import the dummy employees from the external .cvs files. You do not need to enter any W-2 data in this step.

Enter dummy employees manually

You can access employee by clicking the top menu “Current Company->W2 Employee list”. You can add a new employee or edit or delete an existing one easily by clicking the link on this form.

Import dummy data

You can also import Employee information quickly by using W2 import form. You can access this import form by clicking the top menu “Current Company->Import W2”.

You can download sample data here if needed. Please just import employee data only

https://www.halfpricesoft.com/w2-software/test-w2-data.zip

Step 5: Fill out one W-2 form with summary data

Open only ONE W2 form, and enter the summary data on this form. This is the data you want to show on W-3 Form.

Step 6: Print W-3 Form

Now you can print your W-3 forms with correct data now.

Note

1. Form W-3 will be generate automatically based on form W2 information

2. ezW2 allows user to set up unlimited companies with one flat rate. So if you have multiple companies or you are an accountant, you can add new company by clicking top menu “Company Management->New company”

3. The .csv file data import feature, PDF print feature and efile feature are available with Enterprise version and Multiple-user version. They are not available with small business version.