941 and the W-2

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By Laura Detsch

Compliance Officer

For payroll folks out there, we know that employees like to get those W-2s on January 1st, even though they technically can’t file their individual returns yet. If we pause to do a reconciliation first, it may save some work and confusion ahead for both you and your employees.   

Many of you are familiar with the IRS Form 941 and the W-2.  But how many of you realize that, at year end, these two forms must reconcile to each other?   

The cumulative total of the four quarterly filed 941 forms, plus any corrections, for the calendar year have fields that need to be tied back to the cumulative total of all the W-2s issued for the same FEIN. Also, make sure if you have any employees with wages and tips that have exceeded the taxable wage base for Social Security that you are using the correct limitation based upon the applicable filing year. The limitation for tax year 2020 is $137,700.

941 W-2 
Employer identification number (EIN) Employer identification number (EIN) 
Line 2. Wages, tips, and other compensation Box 1. Wages, tips and other compensation 
Line 3. Federal income tax withheld Box 2. Federal income tax withheld 
Line 5a (column 1) Taxable social security wages + Line 5a (i) (Column 1) Qualified sick leave wages + Line 5a (ii) (Column 1) Qualified family leave wages Box 3. Social security wages 
Line 5b (column 1) Taxable social security tips Box 7. Social security tips 
Line 5c. (column 1) Taxable Medicare wages & tips Box 5. Medicare wages and tips 

A word to the wise: If your FEINs do not match, the IRS will be looking at the W-2s without matching 941 forms, calculating how much tax should have been withheld and asking where the deposits for the withheld taxes are.  In addition to possibly delaying your employee’s refund, in some circumstances you may receive an IRS penalty notice. 

Mistakes are fixable, but would it not be great if, with some due diligence up front, you submitted everything correct with the initial submissions? You could take your right hand and reach over your left shoulder and pat yourself on the back for a job well done! 

If you do find a discrepancy, research the difference and make those corrections before disbursing/submitting the W-2s and filing the fourth quarter 941.  If a correction needs to be made to the 4th quarter of the 941 or to a W-2, would it not be easier to make just those corrections to forms that haven’t been dispersed or filed yet? If you determine that a correction needs to be done to one of the prior quarters of the 941, correct it now before the IRS finds the discrepancy and issues a notice.  Then you will only need to correct the form/file and not have to respond to the IRS notice, too. 

In the event a report or form that has been submitted and processed is found to have an error, Greenshades will be available to assist you with the corrections.  But it can cost you professional service fees, time, and lots of aggravation.  

Another word of caution is to make sure you submit your W-2 file only once.  If you try to submit an additional file that is not a mirror image (maybe you made a correction), it will be processed, and any matching SSNs will have the amounts added together, which in effect could have the income and taxes doubled.