![]() When it comes to payroll and employment taxes, there are two main types of tax: So maybe you’ve heard of income tax withholding and FICA taxes, but are you totally clear on what they are? If the answer is “Nope,” let’s take a step back and explain. What are withholding and FICA taxes though? Similarly, in order to keep track of all the wages paid, income, and FICA taxes withheld by an employer, the SSA requires Form W-3 to act as a cover sheet and compilation of all included W-2 forms. Both the IRS and the SSA have a vested interest in ensuring individuals accurately report all of the income they’re paid throughout the year, so they require employers to file W-2 forms for each employee. When individuals file their annual tax return, they report the total income they’ve earned, taxes already paid (usually via employer withholding), and tax owed (or due to be refunded). Why the IRS and SSA require employers to file Form W-3 You aren’t required to, but many employers opt to have employees fill out a new W-4 form each year-to ensure you’re withholding the correct amount. The information new employees provide when they fill out a W-4 form tells you how much income tax to withhold from each of the employee’s paychecks. You can find the correct directory for your state here. Whenever you onboard a new employee, employers are responsible for having them fill out a W-4 form and submitting the completed form to the appropriate State Directory of New Hires. On the flip side, Form W-4 is considered part of all new hire paperwork. In short, Form W-2 tells the IRS and SSA how much you paid and withheld for Jane over the course of the year-Form W-3 tells them how much you paid and withheld in total for all of your employees. Form W-3, by contrast, reports the total wages, taxable wages, and tax withheld for an employer. The key difference is that Form W-2 reports information like total wages and taxes withheld for each employee. They report much of the same information, and every employer who’s required to file one or more W-2 forms must also file Form W-3. The total tax (both income and FICA) withheld from that payįorms W-3 and W-2 are exceedingly similar.The total portion of that payroll that’s subject to Social Security and Medicare (FICA) taxes.Total income and salary paid out (to all employees) by an employer.The form also reports the total income and Federal Insurance Contribution Act (FICA) taxes withheld from employee paychecks.įorm W-3 details, among other information: The IRS and SSA use Form W-3 to track the wages, salary, commission, tips, and other compensation employers pay out throughout the year. In a nutshell, Form W-3 is a document used by the IRS and the Social Security Administration (SSA) to summarize and transmit an employer’s W-2 forms. Who needs to file: Most employers in the U.S.What’s reported on Form W-3: Total employee wages and taxes withheld.If you just need the skinny, here are the main points to know about Form W-3: How to know if you need to file Form W-3.Why the Social Security Administration (SSA) and IRS require employers to file it.We explain everything new and seasoned employers alike should know, including: Here, we’re talking about IRS Form W-3, the Transmittal of Wage and Tax Statements. ![]() That’s why we wrote this guide, along with others, to simplify and explain the new world of payroll taxes, reporting, and IRS forms. Parsing tax forms and FICA withholding doesn’t come naturally to many small business owners, and the IRS website isn’t all that helpful either. That said, we know that some of those responsibilities can seem daunting. While hiring your first employee is an exciting time-your business is growing!-it’s important to get a handle on your new responsibilities. ![]() From the moment a new employer hires their first employee, a whole new world of payroll logistics, IRS tax forms, and other new responsibilities opens up.
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