Last year, due to the Protecting Americans from Tax Hikes (PATH) Act of 2015, the Internal Revenue Service (IRS) updated the deadlines for some of the tax forms. This affected the filing and extension deadline for Forms W-2 for the 2016 tax reporting year. The new due dates apply to IRS Forms W-2, W-2AS, W-2CM, W-2GU, W-2VI, W-3 and W-3SS.
The following article summarized the updated deadlines and other changes regarding IRS Form W-2.
Updated Form W-2 Filing Date and Other Changes
Form W-2 is an IRS information form that is provided by the employer to the employee and Social Security Administration (SSA) at the end of each year. It reports the annual wage income, federal, state and social security taxes withheld, the contributions made toward any qualifying retirement plan, and other deductions to both the SSA and the IRS.
In the past, the employer was required to provide the employee the Form W-2 by January 31, however, the due date for filing Form W-2 with the IRS was February 28th for paper-filing, and March 31st for e-filing. Under the new rules, the due date for filing with the SSA has been moved ahead to the 31st of January, irrespective of whether they are e-filed, or on paper.
This will result in the taxpayer sending the form simultaneously to the employee and the SSA, making it quite impossible to rectify any mistakes before sending it to the SSA.
Furthermore, there will be no automatic extensions of time to file Form W-2 with the SSA. If the taxpayer cannot meet the January 31st deadline, he/she would need to file Form 8809, Application for Extension of Time to File Information Returns, to request for a 30-day extension period to file the required Form W-2.
This Form 8809 should be accompanied with a letter which explains in the detail the need for the additional time, signed under penalties of perjury. The IRS will grant extensions only for extraordinary circumstances such as, unforeseen events or natural disasters, which results in an inability to file the form W-2 by the 31st of January deadline.
Penalties in case of Incomplete or Delayed W-2 Filing
If a taxpayer fails to file Form W-2 by the 31st of January, and is unable to provide an acceptable reason for this failure or files an incomplete form W-2 or provides incorrect details on the form, he/she could be subject to penalties. These penalties also apply if a taxpayer files on paper when he/she is supposed to e-file, or the paper-filed W-2 is not in a machine readable format.
In addition, the penalty continues to increase until the correct Form W-2 is filed. That is, if the taxpayer files Form W-2 within 30 days of the due date, then the penalty is $50 per W-2. If the person files after this 30-day period but before the 1st of August, the penalty doubles to $100 per W-2. While after the 1st of August, the amount is $260 per W-2.
Since the W-2 is submitted by the employer there could be more than one delayed Form W-2. As a result, the IRS has set maximum penalties as follows:
- If the Form W-2s are filed within 30 days, the maximum penalty applicable is $532,000 for the year ($186,000 for small businesses*)
- After the above 30-day period but by the 1st of August; the maximum penalty is $1,596,500 per year ($532,000 for small businesses)
- After the 1st of August, the maximum penalty is $3,193,000 per year ($1,064,000 for small businesses).
*Small business as defined by the IRS is a business with average annual gross receipts for the 3 most recent tax years of $5 million or less.
Exceptions to W-2 Penalties
De-Minimis Rule
If the taxpayer meets the de-minimis rules, then the penalty will not apply to the greater of 10 information returns, or one-half of 1% of the total number of IRS information returns that the business is required to file during the calendar year.
A taxpayer will meet the de-minimis exception if the Form W-2 was filed before due date but the taxpayer failed to include all of the information required on the form or included incorrect information, and thereafter the correct form was filed by August 1st.
Safe Harbor Rule
Additionally, under the PATH Act, safe harbor rules apply to Form W-2 where the actual tax withheld amount varies from the reported withholding amount by less than $25 and no other amounts differs from the correct amount by more than $100.
The safe harbor rule ensures that Form W-2s that fall in this category do not require the taxpayer to file a corrected W-2, as it will be treated to have been filed with all of the correct required information nor will the taxpayer be liable to any penalties. However, keep in mind that, the safe harbor rule does not apply if the payee elects to issue a corrected return.
Impact of New W-2 Deadline for Employers
To meet the new deadlines, employers should be well prepared to complete year-end filings. This would include:
- Verifying the accuracy of employee information such as name, address and TIN number
- Reviewing year-end totals for any discrepancies
- Reporting/submitting any year-end adjustments as soon as by filing Form W-2c, Corrected Wage and Tax Statement.
NOTE: Many states have also adopted the new Federal deadlines. Employers are advised to check the state instructions to ensure the Forms W-2 are timely filed with the State Authorities.
The new January 31 deadline also applies to filing Form 1099-Misc if the payor is reporting amounts in Box 7: Nonemployee Compensation.
Along with the due date for Form W-2 being moved forward, and introduction of the safe harbor and de minimis rules, there will be a verification code included on Form W-2 starting with the 2017 forms. This is being done to avoid identity theft carried out to falsely claim tax refunds.
To know more about the measures on preventing identity theft in the year 2017 and the verification code inclusion to Form W-2, read the following articles:
IRS Identity Theft Measures for 2017 (in review)
IRS Pilot Program To Test Verification Codes on W2 (posted as draft to website)
AG TAX LLP CAN HELP
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of US and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- US Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
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Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
