A W-2 is required to be filed by every employer who is engaged in a trade or business paying remuneration (including noncash payments) of $600 or more for a year in which services are performed by an employee. A W-2 must be filed for each employee for whom income, Social Security, or Medicare tax was withheld, or income tax would have been withheld if the employee had claimed no more than one withholding allowance (or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate).
This article will explain some of the various penalties that may apply for failure to comply with IRS rules and regulations for Form W-2. Use of a third-party payroll service provider or reporting agent usually will not exonerate employers from ensuring that the form is properly and timely filed.
Failure to File Correct Information Returns by the Due Date
A penalty may apply under IRC Section 6721 (failure to file correct information returns) if an employer does any of the following: fails to file timely, fails to include all information required to be shown on Form W-2, includes incorrect information on Form W-2, files paper forms when e-filing is required, reports an incorrect TIN, fails to report a TIN, or fails to file paper Forms W-2 that are machine readable. An employer may show reasonable cause in order to prevent the imposition of the penalty.
The amount of the penalty is based upon when the employer files the correct Form W-2:
1) For forms correctly filed within 30 days (by March 30 if the due date is February 28), the penalty is $30 per form; the maximum penalty is $250,000 per year ($75,000 for small businesses).
2) For forms correctly filed more than 30 days after the due date but by August 1, 2013, the penalty is $60 per form; the maximum penalty is $500,000 per year ($200,000 for small businesses).
3) For forms filed after August 1, 2013, or for required Forms W-2 that have not been filed; the penalty is $100 per Form W-2; the maximum penalty is $1,500,000 per year ($500,000 for small businesses).
4) If an employer does not file corrections, and does not meet any of the exceptions to the penalty (explained below), the penalty is $100 per information return; the maximum penalty is $1,500,000 per year.
Exceptions to the Penalty for Failure to File Correct Information Returns
Depending upon the circumstances, the penalty may not apply if an employer can demonstrate that any failure was due to reasonable cause, and not due to willful neglect. In general, a filer must be able to show that the failure was either due to an event beyond its control, or due to substantial mitigating factors; additionally, an employer must show that proper steps were taken to avoid the failure and that it acted responsibly.
The IRS or SSA may also not consider an inconsequential error or omission to be a failure to include correct information. Errors or omissions concerning the following items, however, are never considered to be inconsequential: A TIN, a payee’s surname, and any money amounts.
Intentional Disregard of Filing Requirements
A penalty of at least $250 per form, with no maximum penalty, will apply in cases in which any failure to file a correct Form W-2 is due to intentional disregard of the filing of correct information requirements.
Failure to Furnish Correct Payee Statements
Under IRC Section 6672 (Failure to furnish correct payee statements), a penalty may apply if an employer fails to provide correct payee statements (Forms W-2) to employees, and is unable to show reasonable cause. The penalty may apply for any of the following: An employer fails to provide the statement by January 31, 2013, fails to include all information required to be shown on the statement, or includes incorrect information on the statement.
The amount of the penalty is based on when the employer furnishes the correct payee statement. This additional penalty is applied in the same manner, and with the same amounts, as the penalty for failure to file correct information returns by the due date under IRC Section 6721 (explained above).
Exceptions to the Penalty for Failure to Furnish Correct Payee Statements
A employer may be able to demonstrate reasonable cause to prevent the imposition of this penalty. Also, inconsequential errors or omissions are not considered to be a failure to include correct information. The following items are not considered to be inconsequential errors or omissions: Dollar amounts, a significant item in a payee’s address, and the appropriate form for the information provided, (such as whether the form provided constitutes an acceptable substitute for the official IRS form).
Intentional Disregard of Payee Statement Requirements
A penalty of $250 per W-2 will apply, with no maximum penalty, for any failure to provide a correct payee statement (Form W-2) to an employee due to intentional disregard of the requirements to furnish a correct payee statement.
Civil Damages for Fraudulent Filing of Forms W-2
If an employer willfully files a fraudulent Form W-2 for payments that are claimed to be made to another person, that person may be able to sue for damages. The IRS estimates this may cost $5,000, or more.
Contact Sherayzen Law Office for Legal Help With Form W-2 Penalties
If you an employer facing Form W-2, Form W-3, Form 941, Form 940 and other employment-tax penalties, contact Sherayzen Law Office for professional legal IRS representation. Our experienced tax firm will vigorously represent your interests, creatively explore various defense theories, prepare any necessary tax forms and strive to secure the best resolution possible under the facts of your case.