Preparing Your Organization’s 2004 W-2 Forms

For employers, the start of the new year brings a flood of paperwork. In just one month’s time, for instance, employers must prepare W-2 Wage and Tax Statements for the prior year and transmit them to employees. 2004 W-2s are due out to employees by January 31, 2005.

The 2004 W-2 has been resized and the margins have changed, but the form remains similar in content to the 2003 form. Following is a summary of the information required in each box.

Box 1 — Wages, tips, and other compensation. Show a gross amount before any payroll deductions. In general, elective deferrals, such as those made to a 401(k) plan, should not be included here.

Some of the items that must be included in box 1 are listed below.

• Total wages, prizes, and awards paid
• Total non-cash payments (taxable fringe benefits, for example)
• Total tips your employee reported (not allocated tips)
• Certain employee business expense reimbursements (including amounts paid under a nonaccountable plan)
• Accident and health insurance premiums paid by an S corporation on behalf of its 2%-or-more shareholder-employees
• Taxable cafeteria plan benefits (i.e., cash paid to the employee under the plan)
• Taxable cost of group-term life insurance in excess of $50,000

Reminder: All wages actually paid in 2004 should be included on the 2004 W-2 form, even if they were paid for days worked in another calendar year.

Boxes 2, 4, and 6 — Withheld taxes. Report federal income tax, Social Security tax, and Medicare tax withheld from your employee’s wages during the year.

Box 3 — Social Security wages. Report all wages subject to employee Social Security tax. Generally, only wages up to the Social Security wage base ($87,900 in 2004) are subject to Social Security tax. Do not include tips. Include elective deferrals to certain cash or deferred compensation arrangements and to retirement arrangements, such as 401(k) plans, 403(b) plans, SIMPLE plans, salary reduction SEP plans, and 457(b) deferred compensation plans for employees of state and local governments and certain tax-exempt organizations. Other items reported in box 1 also might have to be included here. See the W-2 instructions for details.

Box 5 — Medicare wages and tips. Medicare tax applies to all the same wages and tips that are subject to Social Security tax, plus any additional earnings over the Social Security wage base. There is no limit on the amount of wages subject to Medicare taxes.

Box 7 — Social Security tips. Include all tips reported by your employee, even if you did not have enough employee funds on hand to collect the employee’s share of Social Security tax on the tips.

Reminder: The total of boxes 3 and 7 shouldn’t be more than $87,900.

Box 8 — Allocated tips. Large food or beverage establishments should show the amount of tips allocated to employees here. Don’t include these allocated tips in box 1, 3, 5, or 7.

Box 9 — Advance EIC payment. Report any advance payments of the earned income credit you made to an employee here.

Reminder: You are required to notify any employee not having federal income tax withheld that he or she may be eligible for a tax refund because of the earned income credit. To do so, use the back of the official IRS W-2 form (Copy B) or a substitute W-2 form with the same statement. Alternatively, you can use Notice 797, “Possible Federal Tax Refund Due to the Earned Income Credit.”

Box 10 — Dependent care benefits. Report all dependent care benefits under a dependent care assistance program paid or incurred by you for your employee.

Box 11 — Nonqualified plans. This is for distributions from a nonqualified deferred compensation plan or a nongovernmental Section 457 plan. If you did not make distributions, show deferrals (plus earnings) that became taxable for Social Security and Medicare taxes during 2004 (but were for prior year services) because the amounts were no longer subject to a substantial risk of forfeiture.

Box 12 — Codes. Indicate by letter code whether certain items (for example, group-term life insurance over $50,000) apply to the employee. Consult the W-2 instructions for details about the items that must be indicated and for the appropriate coding information. Note that, beginning in 2004, code W (employer’s contribution to a Health Savings Account) is required whenever applicable.

Box 13 — Checkboxes. Check the appropriate box for statutory employees whose earnings are subject to Social Security and Medicare taxes but not federal income-tax withholding, employees who were active retirement plan participants, or employees for whom you are reporting sick-pay payments made by a third party.

Box 14 — Other. Use this to give your employees additional information they may need for their income-tax returns, such as union dues or health insurance premiums that were deducted from their wages. Report the lease value of any vehicle you provided your employee and reported in box 1 here or in a separate statement to your employee. 

Boxes 15 through 20 — State and local information. These areas are available for reporting state or local income-tax information. There is room on each W-2 for information applicable to two states and two localities. Keep each state’s and locality’s information separated by the broken line running through these boxes.

Filing Information You should give your employees Copies B, C, and 2 of their 2004 W-2s by January 31, 2005. Note that, if your employees give their consent, you may be able to furnish Copies B, C, and 2 to your employees electronically. See IRS Publication 15-A for more details.

Send Form W-3 and Copy A of your W-2s to the Social Security Administration by February 28, 2005. If you are filing 250 or more W-2s, you must report on magnetic media (or electronically) unless the IRS has granted you a waiver. Employers that file electronically (not on magnetic media) have until March 31, 2005, to file with the Social Security Administration.

For More Information IRS Publication 15, “Circular E, Employer’s Tax Guide,” and the Instructions for Forms W-2 and W-3 give more detailed information about reporting requirements. You can also check the IRS website www.irs.gov for more information or call the IRS toll-free at 1-866-455-7438. Of course, if we can be of assistance to you, please let us know.

The information provided in the newsletter has been obtained from sources believed to be reliable but its accuracy is not guaranteed.