Why do the IRS and SSA require you to file a W-3 form?

Officially, the W-3 is also called the Transmittal of Wage and Tax Statements, and it serves as a summary of all of a business’s employee wages and contributions during the previous year for the IRS and the Social Security Administration (SSA). Your W-3 coupled with all employee W-2 copies filed by you allows the SSA and IRS to verify that all wages and income and Federal Insurance Contribution Act (FICA) taxes for the tax year were reported correctly.

Importantly, your employer-side W-2 filings and the accompanying W-3 summary work to verify that your individual employees have correctly reported all of their wages, salary, commissions, tips or other types of compensation from you, as well as their contributions.

Do you need to file a W-3 form?

Not every business must file a W-3 form each year. However, if you need to file one or more W-2 forms for any employees during a given year, you also have to file the IRS form W-3 summary that accompanies these W-2 filings. These forms may apply to both in-person employees andremote workers.

In other words, if you’ve hired employees on a full- or part-time basis during the tax year and have withheld income, Social Security, Medicare or other taxes from their wages or salary or if you’ve paid $600 or more in wages to any employee during the year, then you need to file W-2 forms for these employees and a W-3 form summary to the SSA.

Do you need to send a W-3 form to your employees?

No, you don’t. Employers need to send any employees they’ve paid $600 or more in a year their respective W-2 forms by January 31 of the next year. However, for the IRS W-3 form, you, as an employer, only need to send that form to the Social Security Administration along with corresponding W-2 copies.

What does a W-3 include?

Among other things, the W-3 form includes a summary of all of the income and salary or other compensation you paid out as a business to all of your employees during the previous tax year. The W-3 also includes a summary of your payroll that’s subject to Social Security and Medicare contributions. Furthermore, your W-3 summary shows income tax and FICA contributions that you’ve withheld from your employees’ pay.

More specifically, these are the key pieces of information that you need to summarize for all employees in your W-3 form:

• Wages, other compensation and tips
• Allocated tips
• Tips and wages subject to SSA contributions and Medicare tax
• Federal income tax withholdings
• State income tax withholdings
• Medicare tax withholdings
• Social Security contributions withheld
• Deferred compensation
• Dependent benefits

You also have to send a copy of your W-2 filing for each of your employees along with your W-3 summary. These are important as individual supporting documentation for the declared amounts in your W-3.

You only need to file your W-3 form with the SSA and can do so through the agency’s Employer W-2 Filing Instructions and Information page. You must send all of your corresponding employee W-2 forms but won’t be required to submit payment of any kind with your IRS W-3 filing.

What are withholding and FICA taxes?

There are three main types of business, employee and payroll taxes you need to account for. They are:

Withholding taxes

These consist of taxes that you withhold from employee compensation and include federal income tax, state income tax and your employees’ FICA tax contributions. You generally have to withhold these taxes and pay them to their corresponding government collection agencies. You summarize all of these withholdings on your W-3.

Shared taxes

These are a portion of your withholding taxes. They include payment obligations that you share with your employees to Social Security and Medicare and are collectively known as FICA taxes. You normally withhold your employees’ percentages of these payments and pay them with your own percentage of each employee to corresponding government authorities. You summarize these in your W-3 form as well.

Employer taxes

These consist of all the taxes that you, as an employer or business, are liable to pay as part of your personal or corporate liabilities. They’re separate from taxes you share with your employees or withhold on their behalf.

How is a W-3 form different from a W-2 form?

The W-2 form and a W-3 form have things in common. Both documents report employment tax contributions and summarize them by type. However, you have to file both, while your employees only need to file their individual W-2 forms.

The main difference between the two is that, while a W-2 form reports the total wages and tax withholdings for each individual employee, IRS form W-3 reports the total pages, taxable earnings and all types of taxes withheld by you for all of your employees in a year.

Thus, you have to file one W-2 for each of your employees, but only one W-3 form, regardless of how many employees you have for your business.

How is a W-3 form different from a W-4 form?

W-4 forms are entirely different from W-3 or W-2 forms. You normally give these to new employees you hire in a given year and make sure they fill them out for submission to the state hiring directory in your particular state. The important aspect of W-4 forms for your hiring process is that the information your newly hired employees provide lets you know how much income tax you need to withhold from their wages or salary.

How to correctly file W-3 forms

You likely have to fill out and file a W-3 form if you’re hiring employees individually or as a business in a given year. And if you’re one of the many employers who have to do this, you can correctly fill out your W-3 by having the following information available:

• Details about your business, including your employer identification number, contact information and legal business address
• A summary of all wages paid — a summarized breakdown of salary payments, wages, tips, commissions and other kinds of compensation paid to all of your employees throughout the tax year
• Total income tax withholdings — a summary of all state and federal income tax withheld for all of your employees
• Total taxable wages for Medicare and Social Security withholding, which is basically all wages that were subject to FICA withholding
• Total FICA tax withholdings —a summary of all the shared tax withholdings for Medicare and Social Security on your employees’ taxable wages for these contributions

You also need to provide completed copies of their W-2 form to each of your employees for the tax year.

Your IRS W-3 form should be submitted annually as long as you’ve hired or continued to hire employees for wages of $600 or more during the previous year. You should have this form and your corresponding W-2 forms filled out and filed by January 31 of each new tax season.

If you have any difficulties with filling out and submitting your IRS W-3 form to the Social Security Administration, the agency’s website offers a useful employer W-2 and W-3 checklist page that you can use for further clarification.