As a small business owner, you have to deal with a lot of paperwork, which can be tough to manage on top of your daily duties. However, understanding which forms you must file and when they’re due is essential to avoiding costly penalties.
If you have one or more employees, then Form W-3 is on your list of annual filing requirements. Here’s what you should know about it to stay in compliance with regulations, including what it is, how it works, and when it’s due.
How To Read Form W-3
Because Form W-3 is meant to summarize your business’ W-2 forms, it follows a similar structure. Here are some of its most important sections to pay attention to and a brief explanation of what they mean:
- Box 1. Wages, tips, other compensation – This contains the total compensation amount paid to your employees in the previous tax year.
- Box 2. Federal income tax withheld – This displays the amount of federal ordinary income taxes you withheld from your employees’ paychecks and sent to the IRS on their behalf.
- Box 3. Social Security wages – This shows the amount of wages you paid that were subject to Social Security taxes. It often matches Box 1, but will differ if your employees took pre-tax deductions or had salaries above the annual Social Security tax limit, which is $160,200 in 2023.
- Box 4. Social Security tax withheld – This shows the amount of Social Security taxes you withheld from your employees’ paychecks and sent to the IRS on their behalf. The maximum is $9,932.40 in 2023.
- Box 5. Medicare wages and tips – This contains the amount of wages you paid that were subject to Medicare taxes. It should be higher than Box 1 if any of your employees took pre-tax deductions because all wages are subject to Medicare taxes with no limit.
- Box 6. Medicare tax withheld – This displays the amount you withheld from your employees’ paychecks to cover their Medicare taxes and sent to the IRS on their behalf. It should equal 1.45% of your total wages paid.
In addition to summarizing the payroll information in each of your W-2 forms, Form W-3 also presents your business’ identifying information. For example, that includes your company’s name, Employer Identification Number (EIN), and address.
For context, here’s what a blank copy of Form W-3 looks like.
How to File Form W-3
If you have to file Form W-3, the SSA recommends that you do so electronically through Business Services Online (BSO). You can fill out digital forms directly on the website or upload files you’ve created using payroll tax software.
Alternatively, you can print out a paper copy of the form and mail it to the agency at the following address:
Social Security Administration
Direct Operations Center
Wilkes-Barre, PA 18769-0001
If you go this route, you must order an official version of Form W-3 from the IRS. The copies available online aren’t scannable and won’t be acceptable, even those provided by the IRS for informational purposes. If you submit unscannable forms when filing your small business taxes, you may incur penalties.
When is Form W-3 Due?
Generally, you must complete your Form W-3 filing by January 31 immediately after the tax year. For example, you must file your Form W-3 for the 2023 tax year by January 31, 2024.
If you expect to be late, you can request a 30-day extension by filing IRS Form 8809, Application for Extension of Time to File Information Returns. To get approval, you must file your extension before the January 31 deadline, but after January 1 of the same year.
Failing to file your Form W-3 by the due date without requesting an extension or qualifying for an exception will trigger a penalty. Here are the costs for the 2023 tax year forms that are due January 31, 2024:
- Up to 30 days late: $60
- 31 days late through August 1: $120
- August 1 or never filed: $310
If the SSA determines that you intentionally disregarded your responsibility to file a form, it can assess a $630 penalty. Note that these charges apply to each W-2 or W-3 you file late, and your balance accrues interest. These costs can add up quickly.
Form W-2 documents the wages you paid to a specific employee in a given tax year, plus whatever ordinary income, Social Security, and Medicare taxes you withheld from their paychecks.
Form W-3 provides each of those amounts for all of your employees combined. For example, if you had five full-time workers with $60,000 of taxable income apiece, your Form W-3 would show $300,000 in Box 1.
You must file Form W-2 if you make payments, including non-cash payments, to one or more employees during a tax year. Every business that is required to file one or more W-2 forms must also file Form W-3.
You must send a copy of each Form W-2 to the SSA and the employee whose data it contains. However, you only need to send Form W-3 to the SSA. Since it displays your company’s payroll details in the aggregate, it’s irrelevant to your employees individually.