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2015 Taxes

3 Simple Ways to Provide W-2 Support to Clients

We've entered what is arguably one of the most important seasons for your clients: tax season. While your clients are probably more focused on imminent concerns, like sales and bookkeeping, it's important to counsel them to keep tax time top-of-mind, as well. After all, compliance with IRS tax guidelines for companies and their employees is vital to a financially solvent business. And when it comes to individual taxes, the W-2 is one of the most important documents.

A quick refresher on this all-important form:

What is a W-2?

First the W-2 is the Internal Revenue Service’s (IRS) Employee Wage Form, which the agency mandates that businesses of all sizes issue to full and part-time employees by January 31 each year. The form is required for employees who make $600 or more with any one company in a calendar year, and if an employee has made any contribution to Social Security or Medicare, no matter the total compensation. (Not to be confused with the 1099, which is issued only to contractors, freelancers or others who aren't considered employees and who've earned $600 or more in one year.)

Why do my clients need to give them to employees?

The W-2 forms are part of the core of employer-provided documents most taxpayers will use to file their individual income taxes each year. Along with the 1095-C, a newer document that shows proof of employer-sponsored health insurance, your clients are responsible for distributing W-2s at the beginning of each year. A W-2 details an employee's total compensation, pre-tax contributions like health insurance and retirement funding along with federal, state and local taxes that have already been paid by the employee.

Here are a few straightforward tips to help your clients understand the W-2:

1. Stock up on printer toner. Clients will need to print six copies of the W-2 for each employee. Here's the breakdown of where those copies go:

Copy A – employer sends to Social Security Administration by February 28 (employer copy)

Copy 1 – employer sends to the state, city or local tax department (employer copy)

Copy B – employees report for federal income taxes (employee copy)

Copy 2 – employees report to state, city or local tax departments (employee copy)

Copy C – employee keeps for personal records for at least three years (employee copy)

Copy D – employer keeps for company records (employer copy)

2. Prevent errors with a second look: We don't have to tell you how important crossing your t's and dotting your i's becomes when you are handling sensitive information, like employee data, and when you're reporting to a meticulous agency like the IRS. To combat this, encourage clients to double-check their reporting with the Social Security Administration's verification service. This service protects employees by only showing the information employees need to see to be sure W-2s are correct.

Next, it's equally as important for employees to double-check the information their employers reported. While most of us receive tax documents from employers and stuff them out of sight until the tax deadline, or the annual CPA appointment, encourage your clients' employees to review W-2s immediately. This will give the client and the employee time to make any necessary changes far in advance of the April tax deadline.

3. Register for a few courses at tax academy: While payroll taxes certainly aren't very many people's idea of fun, there's a wealth of information provided by both the IRS and the Social Security Administration (SSA) on the ins and outs of W-2s—if your clients are willing to spend time going back to school. First up is the SSA's user handbook, a robust guide of roughly four chapters that is, if you can imagine, pretty detail-oriented. Next, answers to just about any question can be gleaned from the IRS' general instructions for W-2s and W-3s, a guide filled to the brim with the who, what and when of employer-generated tax documents.

Of course, we're always here to help. If your clients’ tax needs send you into unfamiliar or unmanageable territory, feel free to contact BenefitMall. 

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