Business owner’s guide to filing a W-3 Form to Report Wage and Tax Data

The day you hire your first employee as a small business owner, a new universe of payroll, tax, and other accounting responsibilities appears. However, figuring out tax forms, such as the W-3 Form, can be stressful. To help you quickly understand the essentials, this post explains one of the main forms necessary when reporting wages for your first employee. Read on!

What is Form W-3?

With your new hire(s), you must fill out this IRS form showing the transmittal of wage and tax statements. It reports the total employee wages and taxes withheld by a business on behalf of its employees.

It’s used by the IRS and the Social Security Administration (SSA) to transmit Form W-2 information for employees. Form W-3 is used for all W-2 employees paid by a business or legal entity. It tracks any financial compensation an employer pays an employee within a tax year and shows payroll taxes such as:

• Federal Insurance Contribution Act (FICA) taxes withheld from W-2 employees’ paychecks
• Total Social Security and Medicare wages to employees
• Total federal income tax withheld from an employee(s) paycheck

Learn more about how payroll works.

Who is responsible for filing the W-3 Form?

This form is essentially a cover sheet to transmit W-2 Forms to the SSA.

If you paid a W-2 employee $600 or more in wages in a tax year, withheld any income, Medicare, or Social Security from an employee’s wages, or would have had to withhold if the employee had not claimed an exemption from withholding, you should file this form.

How often should you file the W-3 Tax Form?

You must file this form annually if you issue a W-2 to one or more employees.

IRS Form W-2 vs W-3: What’s the difference?

Every employer required to file W-2 forms must also file Form W-3.

The difference in the forms is that the:

• Form W-2 reports total wages and taxes withheld for each employee individually.
• W-3 reports the total (taxable) wages and withholdings for all employees collectively by the employer.

Remember: Include the W-2 tax forms of every employee. If you have five employees, you must send five W-2 forms. The sum from all the W-2 forms should equal the amount reported on your W-3 form.

How is an IRS Form W-3 different from a W-4?

While IRS Forms W-3 and W-4 have similar information, the employer fills out one, and employees fill out the other. Employees generally fill out a W-4 form. The employer usually fills out a W-3 for the SSA. A W-4 has form fields that indicate how much tax should be withheld from an employee’s paycheck.

Why business owners must file a W-3

When business owners have employees, they must file payroll tax returns, such as Forms W-2 and W-3, with the SSA. These forms report the total wages earned for income, Social Security, and Medicare purposes. They also report taxes withheld for the employee to the SSA and the IRS.

The IRS and SSA enforce correct income reporting. This form compiles employee W-2 forms, ensuring all wages paid, income, and FICA taxes withheld by an employer are accounted for. This form is a key document for the IRS and SSA.

How do you complete Form W-3?

To fill out this form, you’ll need the following information on hand:

• Business identifying information, like your business name, address, Employer identification number (EIN), and other contact information
• The total of the following for all W-2s sent with the Form W-3:
  • Federal and state income tax withheld
  • Employee’s share of Medicare tax withheld
  • Employee’s share of Social Security tax withheld
  • Wages paid to employees (salary, tips, commission, and other compensation) paid to employees over the prior year
  • Taxable employee wages for Social Security and Medicare

When is the W-3 Tax Form due?

This tax form is due each year by the W-2 deadline – January 31 – to the SSA. You must submit it every year your business pays employees and is required to file a W-2. The IRS then obtains the information from the SSA.

How do you file Form W-3?

You can file this form online via e-file. Another option is to file it through the mail using a paper form.

Need more help with the transmittal of wage tax statements and other small business tax forms? If you want to delegate the task of completing your small business payroll tax requirements to a tax pro, we have your back!

Block Advisors is here to help small business owners with tax preparation, payroll, bookkeeping, business formation, and compliance. Let our team work for you.

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