When running a business, there’s never a shortage of to-do items, especially when it comes to year-end. An important aspect as you close out 2020 and enter 2021 is your employer-employee relationship and how you are handling payments to those individuals.
What is IRS Form W-2 and What is It Used For?
If you have employees, then it’s vital you understand what a W-2 is and why it matters. The Wage and Tax Statement (Form W-2) is an information return form that reports on an employee’s yearly wages and the amount of tax withheld. Companies are required to provide this form to their employees come year-end.
Mistakes on the W2 often can result in costly penalties or wasted time. Common issues we see include:
How does a 1099 differ from a W2?
It’s important to understand the difference between a 1099 vs. W-2 form and who receives them. These forms deal with the relationship between an organization and the person performing work for that organization.
If the individual is considered an employee, your organization is required to withhold payroll tax. These individuals receive Form W-2.
If the person conducting the work is considered an independent contractor, withholding payroll tax is not required. Independent contractors receive Form 1099-MISC.
When do I need to give my employees their Form W2?
Employers are required to give their employees the Form W2 each year so an employee can properly file their taxes. For 2020, employers are required to disseminate the W2 by February 1, 2021.
A W2 resource to help you make sense of year-end planning
Our W-2 eBook has what you need to understand, and correctly fill out, a W-2 for each of your employees. The book includes: