Mistakes on payroll reporting forms can be time consuming and costly. With 941 time (always seems to be that time) and W2 season approaching fast now may be a good time to take a look at some of the frequent mistakes.
In general some of the most frequent reporting errors revolve around identifying the business and employee. The SSA and the IRS use the EIN and SSN for identification purposes. Your nine digit EIN should be correct and match on both your 941 and W3 forms. The social security number and employee’s name must match in the SSA’s file. Using titles such as Mr. and Mrs. in the name field may hinder the electronic identification of an individual. Another mistake can be made when reporting wages the year after an employee has passed away. These payments cannot be considered wages they must be reported on a 1099 Misc form in box 3.
Out of balance reports can occur due to several different circumstances. Omitting wages and/or taxes on a wage report or making a decimal error when reporting the wages and/or taxes. Always use a decimal point and report dollars and cents even if it is .00. Using the maximum Social Security wage amount for a prior year instead of the amount for the current tax year reported can be avoided by being an informed employer.
Specific W2/W3 form mistakes may be: not filing with SSA, using incorrect forms, not reporting the correct Medicare wages, or checking and/or not checking the proper boxes on the W2 form itself. W2 forms are to be filed with SSA not the IRS. Paper W2 copy A and W3 forms must be printed in OCR red drop-out ink on paper of the proper weight, margins and format. All paper forms must meet IRS regulations, red ink forms must be scannable and the forms must be for the correct reporting tax year. Remember, Medicare wages/tips do not have a limit that is subject to Medicare tax such as social security wages. Avoid checking the void box unless you do not want those wages reported. Another box to pay attention to is box 13 this includes the retirement plan box always check this box if your employee participates in a retirement plan.
Another important reporting form with frequent errors is the 941 Form. Some mistakes pertaining to these forms are again incorrect Medicare/Social Security wages and box 13, as pertaining to third party sick pay, also failing to file corrected forms and filing duplicate 941 forms. As with W2 forms separately report Medicare and Social Security wages but do not report amounts not covered by Social Security/Medicare wages such as employee earnings exceeding the yearly taxable amount for Social Security wages and payments to an independent contractor shown as wages.
If you need to adjust a prior year’s earnings on a 941 Form you must file W2c and W3c forms. Do not file duplicate 941 forms. This may happen if you include information from one month in two different quarterly filing reports. All these mistakes can be time consuming for the business owner to rectify and possibly incur monetary penalties.
Let’s try not to give anymore time and money than is required. Being vigilant and informed when inputting information and generating forms can help us avoid mistakes. Measure twice cut once as the saying goes, double check your forms the first time around to avoid a second time around.
