Filing W-2s on time is critical if businesses want to avoid severe fines and penalties for late filing. There are penalties in place for businesses that do not file on time and accurately.
Failure to File Correct Information Returns to IRS/SSA
Current penalties include:
- $50 per W-2if you correctly file within 30 days; maximum penalty $588,500 per year ($206,000 for small businesses)
- $110 per W-2 if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,766,000 ($588,500 for small businesses)
- $290 per W-2if you file after August 1, do not file corrections, or do not file required Forms W-2; maximum penalty $3,532,500 per year ($1,177,500 for small businesses)
Things get even more serious if a company fails to file any required W-2s. Intentional disregard of filing requirements: If any failure to provide a correct payee statement (Form W-2) to an employee is due to intentional disregard of the requirements to furnish a correct payee statement, the penalty is at least $580 per information return with no maximum penalty.
Exceptions To The Penalty
The following are exceptions to the failure to file correct information returns penalty.
- The penalty will not apply to any failure that you can show was due to reasonable cause and not to willful neglect.
- An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission is an error that does not prevent or hinder the SSA/IRS from processing the Form W-2, from correlating the information required to be shown on the form with the information shown on the payee’s tax return, or from otherwise putting the form to its intended use. Errors and omissions that are never inconsequential are those relating to:
- A TIN
- A payee’s surname
- Any money amounts
- De minimis rule for corrections. Even though you cannot show reasonable cause, the penalty for failure to file correct Forms W-2 will not apply to a certain number of returns if you:
- Filed those Forms W-2 on or before the required filing date
- Either failed to include all of the information required on the form or included incorrect information, and filed corrections of these forms by August 1.
- Forms W-2 issued with incorrect dollar amounts may fall under a safe harbor for certain de minimis errors. The safe harbor generally applies if no single amount in error differs from the correct amount by more than $100 and no single amount reported for tax withheld differs from the correct amount by more than $25. However, if the payee elects for the safe harbor not to apply, you may have to issue a corrected return to avoid penalties.
Failure to file on time may also result in dissatisfied employees and contribute to turnover. It may also motivate those employees to report the failure to the SSA.