The season to finalize w2 forms is almost here! As the January 31st deadline quickly approaches, now is the time to address any gaps in your W-2 forms and end of year processing. If you, your payroll, and or accounting team are not careful during this stressful time, costly mistakes can easily be made. You must create a system of checks and balances to keep your company safe from any negative surprises. To help you, here are the top most common errors to look out for.  

Missing or Incorrect Name or SSN

Employers are required by the IRS to correct errors made in an employee’s name or Social Security number (SSN). Errors can include leaving an employee name or SSN blank or showing the SSN as “000 00 0000” or “applied for” after a valid SSN is obtained from the employee.

If any employee has changed their name due to marriage or divorce, they are required to furnish a new Form W-4. If an employee’s last name on the Form W-4 differs from what is on their Social Security card, they will need to check box 4 on the Form W-4.

It is important to note that the IRS requires that employee Form W-2s and Form 1095-Cs must match what is printed on their social security cards. For example, if an employee has a hyphenated last name on their social security card but it is not hyphenated on their Form W-2 or Form 1095-C, this will be flagged as an error.

Incorrect Employer Name or Address

The employer’s name and address should be the same across all Forms W-2, 941, 941-SS, 943, 944, CT-1 or Schedule H (Form 1040). If a change of employer address is required, a Form 8822-B should be filed. Form W-3c cannot be used to correct this type of information. 

Incorrect Employee Address

Employees should use an address where they can receive mail if they need to be contacted by the employer or IRS. An employer has three options if the Form W-2 has an error related to the employee’s address:

  • Furnish the employee with a corrected Form W-2 with a “reissued statement” printed on it.
  • Mail the original Form W-2 to the employee’s correct address.
  • Complete a Form W-2c showing the correct address and all other correct information, if applicable.

Excess Contributions to HSA

If there are excess contributions that have been made to an employee’s Health Savings Account (HSA), exceeding the 2019 maximum annual contribution amount for self-only coverage or for family coverage, the employer may correct this error like this:

  • Firstly, the employer may request a return of excess funds from the financial institution and will refund this amount to the employee. Then, the employer can issue a Form W-2c showing the reduction in the amount reported in box 12, Code W.
  • Or the employer may choose not to recover the excess contributions, but include them in taxable wages on Form W-2, boxes 1, 3, and 5. The Social Security and Medicare tax owed on the excess amount is shown in boxes 4 and 6. If this is not properly recorded on the Form W-2, then a Form W-2c must be issued.

Excess Contributions to Qualified Retirement Plan

If there are excess contributions that were made to qualified retirement plans such as 401(k)s and 403(b)s, these excess contributions should not be reported on a Form W-2 but on a Form 1099-R.

Excess Pretax Contributions to FSA

If you have an employee who exceeded his or her annual limit for the 2019 FSA pretax contribution, this excess should be refunded to the employee, and the amount should be recorded as taxable wages in Form W-2c, boxes 1, 2, and 5.

Please remember that if this correction is not made, the employer is held liable for any Social Security and Medicare tax not withheld and will have to pay this amount. Furthermore, the employer is responsible for any federal income tax and Additional Medicare Tax, not withheld. By recording this excess or by obtaining Form 4469 from the employee, the employer can avoid the federal income and Additional Medicare Tax liability, plus any penalties which can arise.  

Incorrect Amount Reported in Box 12, Code DD

There are instances where the cumulative value of the employer-sponsored health coverage is incorrectly reported. A Form W-2c is required to be filled out to correct the amount in box 12, Code DD. Failure to do so can result in a penalty assessed of $270 per Form W-2.

Incorrect EIN or Tax Year

Employer Identification Number (EIN) or tax year errors on Form W-2 can create several time-consuming problems for employers, including issues with Forms 941. There is a penalty assessed for EIN and tax year reporting errors. Correcting the EIN or tax year is a two-step process.

Step 1: Prepare Forms W-2c and W-3c with the Previously Reported Information

  • Provide the incorrect EIN in box b and or the incorrect tax year in box c.
  • Show the money amounts initially reported in the previously reported column.
  • Show zeros in the corrected amounts column.

Step 2: Prepare Forms W-2c and W-3c with the Correct Information

  • Show zero in the money amounts of the previously reported column.
  • Show the money amounts reported initially in the corrected amounts column.
  • Make sure to give employees a copy of Forms W-2c and file Forms W-2c and W-3c with the SSA.

Error Withholding Federal Income Tax/Additional Medicare Tax

If there are corrections that need to be made on a W-2 form regarding the reporting of federal income tax or Additional Medicare Tax withheld, the Internal Revenue Service (IRS) will not allow it unless it’s deemed “administrative.” If the amounts shown on Form 941 do not match the amounts actually withheld, the error may be corrected.

Excess Social Security/Medicare (FICA) Withholding

Employers need to be aware of the corrections process when they have a Form W-2 that shows excess FICA withholding for an employee. The IRS expects employers to complete the following when there is excess Social Security/Medicare (FICA) Withholding:

  • Refund, any excess FICA, withheld, so a Form W-2c should be issued, displaying the correct amount of the FICA withholding amount.
  • Refund the FICA tax overpayments to the employees.
  • If the employee has not and will not claim a refund of the excess on the personal income tax return, you can file a Form 941-X requesting an adjustment or refund for the employee and employer overpayment of Social Security and Medicare.

Form W-2 Penalties

We have mentioned above the common W2-form errors companies make when filing w2s. Now, we would like to discuss the penalties the Internal Revenue Service (IRS) may impose as a result of these errors.

Large Businesses with Gross Receipts of More Than $5 Million

Time Returns Filed/Provided Not More Than 30 Days Late 31 Days Late – August 1 After August 1 – Not at All Intentional Disregard
Due 1/1/2020 – 12/31/2020 $50 per return or statement –
$556,500 maximum
$110 per return or statement –
$1,669,500 maximum
$270 per return or statement –
$3,339,000 maximum
$550 per return or statement –
No limitation

Small Businesses with Gross Receipts of $5 Million or Less

Time Returns Filed/Provided Not More Than 30 Days Late 31 Days Late – August 1 After August 1 – Not at All Intentional Disregard
Due 1/1/2020 – 12/31/2020 $50 per return or statement –
$194,500 maximum
$110 per return or statement –
$556,500 maximum
$270 per return or statement –
$1,113,000 maximum
$550 per return or statement –
No limitation

Conclusion: Avoid W-2 Errors Entirely

 Year-end processing is always overwhelming and time-consuming, so the last thing you need to worry about is correcting W-2 errors. A great way to be proactive about W-2 errors is to partner with a payroll provider that offers a unified, cloud-based solution. Using a centralized database is beneficial in three ways:

  • Information is entered only once, eliminating the potential for errors.
  • The data is synced between payroll, HR, attendance, and benefits, so the data is accurate.
  • The information is stored in a secure, centralized database

If you have any gaps in your W-2 or year-end processing, now is the time to address it– instead of dealing with penalties later. The right tools and resources can help you better manage your year-end tasks and avoid W-2 errors entirely.