The first few articles in this series show you how to fill out the Form 914, Employer's Quarterly Federal Tax Return. That form shows how the amount of employment tax you have withheld from your employee's checks and your FICA match.
This article shows you how to prepare the yearly Form W-2, which you give to your employees by January 31 of each year. It's kind of a pain to correct a W-2 after you have given it to an employee, so follow along with my instructions to make sure you get it right the first time!
Boxes A Through F
Self-explanatory , fill in your employee's social security number, name and address. You also fill in your business' employer identification number, name and address.
W-2 Wage Boxes 1, 3 and 5
Boxes 1, 3 and 5 ask for different categories of taxable wages you have paid to your employee. For most arts and crafts businesses, the amount you put for the employee in each box will normally be the same.
Where they would differ is if you pay your employee over the FICA dollar limit for the year, or your employee has deferred wages that went for health benefits or what-not. This is something you would be aware of as you fill out and file your quarterly Form 941.
Regarding Box 7 - I can't see an arts and crafts business ever paying tips to an employee.
Employment Tax Boxes 2, 4 and 6
Box 2 shows the amount of federal tax withheld from the employee's payroll check for the entire year. For example, if your employee was paid 12 times during the year and had $125 withheld from his payroll check each time, the figure you put in this box is $1,500 ($125 x 12).
Box 3 shows the social security portion of FICA tax. This does not include your match as an employer. This should equal the amount in Box 3 times the rate for the W-2 year. For example, if the amount in Box 2 is $12,500 and the rate for the year is .104, the W-2 amount is $1,300 ($12,500 x .104).
Perform the same calculation for Box 6. Most small arts and crafts businesses don't have to fill out Boxes 8 through 14. Ask your accountant if you are unsure whether or not your company gives employees the types of benefits requiring entries into these boxes.
State and Local Reporting - Boxes 15 Through 20
If your state or city also has a tax on wages, here is where you enter the information. Each state and city differs somewhat, so get the required information from your state or city department of revenue.
You have to give your employees their W-2 by January 31 and send all W-2s and the transmittal form W-3 to the Internal Revenue Service (IRS) by the last day of February. For more information about preparing Form W-2 see the IRS website.
The next article in this series shows you how to prepare transmittal Form W-3.