Understanding the Employer’s Form W-3
At the beginning of every year, most Americans receive a Form W-2 for their previous year’s work. And every year, we all file our taxes using this important form. If you’ve ever wondered what an employer’s side of this process is, it all starts with a Form W-3. So what is a Form W-3?
Form W-3 is essentially the total and final product of the employee’s W-2s. Items from individual employee’s W-2s are added up to create the employer’s tax form. Even if you’re one of the many business owners that outsource the task of W-3 transmittals and tax filing to an accountant or CPA, it’s good to understand the W-3 process. Let’s start by answering our original question.
What is a Form W-3?
As we briefly mentioned, the Form W-3 is essentially the employer’s version of the W-2. Just as employees have taxes, there are employer-side taxes as well. Along with this, employers also have to pay the “employer-side” portion of employee’s taxes.
While the Form W-2 facilitates an employee’s income taxes, the Form W-3 is the transmittal form for all of the W-2s. While copies of the Form W-2s go to employees, an additional copy is sent to the Social Security Administration. The Form W-3 accompanies these forms as well. It’s important to note that this is sent to a separate institution from the IRS. Most people associate any and all taxes with the IRS, but that’s not always the case.
Who Has to File Form W-3?
In general, if you have employees in your business that receive a W-2, you’ll have to file the Form W-3 as well. As we just mentioned, the W-3 is the transmittal form for sending copies of your employee’s Form W-2s. So, these forms go hand-in-hand. The deadline for filing both forms (your W-3 and copies of employee’s W-2s) is the same day – January 31st of the following year.
So, the deadline for filing both forms for 2020 with the Social Security Administration is January 31st, 2021.
The Sections Of A Form W-3
Now that we’ve covered what a W-3 actually is, let’s explore the different sections and steps of completing the form. Remember that the W-3 is the transmittal form when sending in your employee’s Form W-2s. This will make more sense as we get into the details of the information requested on the Form W-3.
First off, like the W-2, the W-3 must be printed on the correct form and with the correct year. This is the first thing to double-check that your W-3 is up to snuff. This is arguably the easiest step to complete, so after this, you may need to entrust your tax preparations and filings with a professional, but we’ll cover this a little later.
Let’s start with the beginning of the form – your employer information.
Boxes A-H compile the employer’s information.
Box A: Optional Control Number
This optional box is for the business’s internal use. Think of it similar to a company using purchase order numbers for internal tracking.
Box B: Kind of Payer and Kind of Employer
While this section isn’t hard, its important that you fully understand what type of filer/entity your business is. If you’re unsure about being a household employer or a 941, reach out to a CPA or double check your information.
- Kind of Payer: There are a few ways to fill out this box. The type of payer also depends on your filing status. The 941 is the most commonly used option, as many employers file their federal tax returns on a quarterly basis. The size and industry of your business will also come into play. For example, a single owner S-Corp could easily get away with filing their taxes on an annual basis instead of quarterly.
- Kind of employer: If your business isn’t a government entity or a qualifying non-profit, simply check the “none apply” box. Otherwise, select which entity you are out of the available options.
The additional options in Box B (Kind of Payer) are explained in the table below:
|941||The 941 is an employer’s quarterly Federal Tax Return. This is the most commonly used option.|
|943||The 943 is the Employer’s Annual Tax Return for Agricultural Employees.|
|944||File 944, is an employer’s annual Federal Tax Return.|
|Military||This option is for military employers filing Form W-2s for uniformed service members.|
|CT-1||The CT-1 is used by railroad employers that are covered under the Railroad Retirement Tax Act.|
|Household Employee||If you’re a household employer, and you do not include the household employees’ taxes on Form 941 or Form 943.|
|Medicare Government Employee||This option applies to companies that are: a U.S., state, or local agency.|
Box C: Total Number of W-2s
In this box, simply add the total number of W-2s you’ll submit for your employees.
Box D: Establishment Number
The establishment number helps employers identify different areas of their businesses either by location, division, etc. Some employers use this section to separate out their out of state employees. Note that if you do choose to create establishment numbers, you’ll have to separate out your W-2 forms as well. Not only this, but each establishment will also need its own W-3. So, if you’re using an establishment number for locations, each location would have a W-3 and a set of correlating W-2s to go along with it.
That covers everything contained in the first section of the Form W-3, so let’s take a look at what wage and tax information is required for the next section of the Form W-3.
Wage and Tax Information
This section will look a lot more familiar than the previous one. While the above-mentioned information is specific to the W-3, these items are actually the same on Form W-2 and Form W-3 for boxes 1-19.
However, keep in mind that the Form W-3 is for transmitting all of your employee’s W-2s. So, your boxes are for the totals of all employee’s information. If any of your employee’s W-2s are marked with “VOID,” do not calculate their amounts with your other W-2s.
Boxes 1-14 explained:
- 1: Total up all Box 1 wages, tips, and other compensation.
- 2: Enter in your employee’s total Federal Income tax withheld (total of all box 2’s).
- 3: The total for box 3 social security wages (wages subject to social security tax).
- 4: Enter the total amount of social security taxes withheld from all employees.
- 5: Total up all of the box 5 wages and tips that are Medicare taxable.
- 6: Enter the total Medicare tax withheld from all employee’s W-2s.
- 7: In Box 7, you’ll enter the total taxable tips from your W-2s.
- 8: Enter the total amount of allocated tips from all of your employee’s W-2s.
- 9: You’ll see that Box 9 is blanked out in Red – do not enter an amount here.
- 10: Enter the total amount reported on employee’s W-2s.
- 11: Total up all Box 11 amounts for nonqualified plans.
- 12: There are two sections to Box 12 and you’ll see that one of them (12b) is blocked out in red like Box 9 was. Do not enter a code in this section (12b). In Box 12a, you’ll enter the total deferred compensation from all employee W-2s.
- 13: This box is for third-party sick pay use only, so leave this box empty as well.
- 14: Box 14 is for employers that have income tax withheld for third-party sick pay use. If your employees have federal income tax withheld for third-party sick pay payments, enter in the total amount from their W-2s in Box 14.
This is the end of the federal information on the Form W-3. The next chunk of boxes is for your state and local information.
Boxes 15-19 explained:
- 15: Enter your state abbreviation and your employer state ID number in Box 15.
- 16: In Box 16, you’ll enter in the total state wages and tips from all employee’s W-2s.
- 17: Enter the total state income tax withheld from all employees.
- 18: Total up the local wages and tips from all box 18’s on employee’s W-2s.
- 19: In Box 19, enter the total local income tax withheld for all employees.
This is the end of the Form W-3 boxes. If you’re looking for additional resources, the IRS is a great place to start. They have instructions available for understanding and filing both Form W-2 and form W-3. While the copy for this year isn’t yet available, here is 2020’s instructions for an example.
How to File a Form W-3
If you started reading this article because you asked yourself, “what is a Form W-3,” you may need to seek assistance with filing, depending on your business. Obviously, the more employees you have the more paperwork and W-2’s you’ll have to deal with. This makes it a bit more difficult than totaling up a few sections. When you get up to say 50 employees, it may be worth it to hire a third party for peace of mind.
Before You Go…
Now that we’ve covered all of the ins and outs of what a W-3 form is, let’s end with some tips. If you’re still confused and in search of resources, the IRS website is a great place to start. Since the Form W-3 is submitted to the Social Security Administration, this is another great place to look for information. If you have enough employees, it’s worthwhile to look for an experienced CPA. Lastly, remember to weigh any time and costs against the stress it’ll save.