What You Need to Know About Sending Form W-2s Electronically

Form W-2 is a United States Internal Revenue Service (IRS) tax form that every employer must complete for each employee to whom they pay a salary, wage, or other compensation as part of employment. The IRS allows you to establish a process for sending Form W-2s electronically to employees. However, you must first obtain the consent of each participating employee — either electronically or via paper document.

• They will get a paper Form W-2 if they do not consent to electronic delivery
• The duration and scope of the consent
• Any procedure for receiving a paper W-2 — including whether the employee’s request for a paper W-2 is regarded as revocation of their consent to electronic delivery
• Procedure for withdrawing consent, the effective date of the withdrawal, and your process for confirming the withdrawal
• Any conditions under which the employee will no longer receive their W-2 electronically, such as due to termination of employment
• Employee procedure for updating personal or contact information, to enable you to deliver the W-2 electronically
• Any changes to your business’ contact information
• All hardware and software requirements needed to receive the W-2 electronically. If you send W-2s directly to the employee self-service portal, make sure your employees know how to access the portal and retrieve their Form W-2

You cannot send a Form W-2 electronically to employees who have not given you their consent or who have withdrawn their previously given consent.

Who gets a Form W-2 — and by when?

If you withheld any income taxes, Social Security tax, or Medicare tax from an employee’s wages, then you must complete a Form W-2 for that employee. When filling out the W-2, include the employee’s gross taxable wages and taxes withheld for the year. Give employees their copy of the W-2 by January 31, as mandated by the Social Security Administration (SSA). Also, file each W-2 with the SSA, by January 31. You have until the next business day if January 31 falls on a Saturday, Sunday, or legal holiday. When filing Form W-2s, remember to attach Form W-3, the transmittal/reconciliation form that sums up the W-2s you’re sending to the SSA. If you withheld state or local taxes from your employees’ wages, you’ll need to file the W-2s with the respective state or local taxation agencies by the required deadline. Many states have their own transmittal/reconciliation form that employers must attach when filing W-2s with the state.

Which employers must file W-2s electronically?

As of this writing, employers filing 250 or more Form W-2s must do so electronically, unless they have a waiver from the IRS. For example, if you believe filing electronically will pose a hardship to your business, you may submit Form 8508, Request for Waiver From Filing Information Returns Electronically, to the IRS. The state may have its own form for requesting a waiver from filing W-2s electronically with the state. To file W-2s (and corrected W-2s) electronically, you’ll need to go through the SSA’s Business Services Online (BSO) system. Or, you can use a payroll technology vendor that will file W-2s on your behalf.

The Taxpayer First Act of 2019 authorizes the Treasury and the IRS to issue regulations that lower the electronic W-2 filing limit from 250 to 100, potentially starting in 2021; and then from 100 to 10, potentially starting in 2022. According to the IRS, “If those regulations are issued and effective for 2020 tax year returns, we will post an article at IRS.gov/FormW2 explaining the change. Otherwise, the same limits as applied last year will apply for tax year 2020.” This basically means that at some point, businesses filing at least 10 Form W-2s will have to do so electronically. If you’re not required to submit your W-2s electronically, you can file by paper.

Encouraging employees to receive W-2s electronically

You cannot force employees to receive their W-2s electronically, as you must give them the option to receive paper W-2s (e.g., by hand delivery or mail). That said, both the employer and the employee can benefit from electronic W-2 delivery. On the employer side, you get to save on the costs that come with paper W-2s — which can include stationary, printing, postage, and manual labor. While you may not be able to achieve an entirely paperless Form W-2 system, you can reduce the number of paper W-2s by encouraging employees to accept electronic delivery. You can, for example, gain employees’ cooperation by explaining the advantages of receiving electronic W-2s. These advantages include:

• Protection against fraud and identity theft. Form W-2 contains sensitive employee information, including Social Security Number (SSN) — unless you’ve opted to truncate the SSN. The employee’s personal information may be at risk (e.g., fraud) if the paper W-2 is lost in the mail or stolen.
• Earlier access to W-2s. If the employer waits until the deadline (January 31) to mail W-2s, employees will not receive the form until after the deadline. Electronic delivery eliminates this delay, as employees do not have to wait for their W-2s to arrive in the mail.
• Access to current and prior W-2s. For example, a self-service portal lets employees obtain W-2s for both present and past years.
• Convenience. Employees can access their W-2s online, even when away from work or home. They can also print W-2 copies as needed.

Distributing W-2s electronically is a smart cost containment strategy. Just be sure to follow the disclosure requirements outlined in IRS Publication 1141.