Error #1: Missing the point
IRS wants your two cents. Or 54 cents. Or 99 cents. Many of your peers incorrectly omit the decimal point and cents from their W-2 entries. The Service doesn’t want that to happen. Give a scan to see that all decimal points are where they belong.
Error #2: Being too light
The Taxman cringes when entries on information returns use ink that is too light. To play it safe, the feds want your company to use only black ink. (And make sure you aren’t running low on toner when you print returns.)
Error #3: Not realizing that size matters
Too small, and numbers are hard to read. Too large, and they spill into another box. IRS warns against making entries that either extreme. In fact, the feds have a very specific request when it comes to typeface:
- Courier font (if possible).
Error #4: Still seeing the sign
Go ahead and delete those dollar signs to any money-amount boxes on those W-2s. IRS doesn’t want to see them anymore (though it appears they still do quite often). The dollar signs have been removed from Copy A and are not required on information returns.
Error #5: Retirement plan
This is a big bugaboo for IRS. And there’s a whole host of ways Box 13 goes off the rails. First, many employers inappropriately check the “Retirement plan” checkbox in Box 13. You should check the retirement plan box if an employee was an “active participant” for any part of the year in:
- a qualified pension, profit-sharing, or stock-bonus plan under Internal Revenue Code Section401(a) (including a 401(k) plan).
- an annuity plan under IRC Section 403(a).
- an annuity contract or custodial account under IRC Section 403(b).
- a simplified employee pension (SEP) under IRC Section 408(k).
- a SIMPLE retirement account under IRC Section 408(p).
- a trust described in IRC Section 501(c)(18).
- a plan for federal, state, or local government employees or by an agency or instrumentality thereof (other than a 457(b) plan).
Even if you properly check the box, there’s also the issue of how you code it. And again, employers are coming up short. A few examples, courtesy of the Taxman:
- code D for 401(k) elective deferrals incorrectly included 403(b), 457, or non-qualified amounts.
- code E for 403(b) contributions but did not have a 403(b) plan.
- code H to incorrectly report health benefits; code H is for elective deferrals to a 501(c)(18)(D) tax-exempt organization plan. (In fact, a recent Employee Plan Compliance Unit project found that only 6 % of employers who used this code actually contributed to a 501(c)(18) plan.)
- code S for a SIMPLE 401(k); the correct code for a SIMPLE 401(k) is code D.
For more info, on this topic, click.
Error #6: Losing the name game
IRS’s final complaint? That employers misformat employees’ names in Box E. Make sure your payroll staffers are taking the following approach:
- Enter the employee’s first name and middle initial in the first box,
- his or her surname in the second box, and
- his or her suffix (such as “Jr.”) in the third box (optional).