The Importance of a W3 Form For Your LLC

A Form W3, or Transmittal of Wage and Tax Statements, is a document that goes hand in hand with Form W2, condensing the information it contains.

05:24 17 May 2022

A Form W3, or Transmittal of Wage and Tax Statements, is a document that goes hand in hand with Form W2, condensing the information it contains. Similar to Form W2, a business’s Form W3 contains an aggregated list of the relevant employees' information that is required by the Internal Revenue Service (IRS).

 

Furthermore, Form W3 demonstrates the total earnings employees have been paid by a company, gross income, and the Social Security and Medicare taxes withheld from employee paychecks. It is used by IRS to assess whether a business is paying adequate employment taxes.

 

In 2020, nearly $6 billion in penalties was levied by the Internal Revenue Service (IRS) against employers for missing/miscalculating their companies’ employment taxes. It is for this reason that it is of paramount importance that LLCs submit their W3 Form correctly and on time. This article will further break down the difference between W2 and W3 Forms before exploring in more depth the importance of the latter.

 

Form W2 vs Form W3

It would be an easy mistake for new LLCs to make to confuse their W2 and W3 forms due to how similar they are, but it is important LLCs are aware of the differences between the two documents so that they do not incur heavy sanctions from the IRS.

 

Form W2 is used to report the salaries, tax withdrawals, and contributions of individual employees, and copies are sent to a number of different parties, such as the Social Security Administration (SSA), each employee, the LLC’s records, and the state, city or local tax department (where necessary).

 

Contrastingly, Form W3 is only sent to the SSA and is submitted by the employer. This is the biggest distinction between the two important documents. Its purpose is to substantiate the details reported on Form W2 by each employee.

 

To complete Form W3 only very basic and easy to acquire details are required from an LLC, which must provide their Employer Identification Number (EIN), legal name, mailing address, and payroll records. Payroll records include information regarding your business’s payroll register, employees’ total earnings, withheld taxes and deductibles, and net salary.

 

Why Is It Important?

If a business must submit at least one Form W2 (i.e. they have at least one employee), the employer is required to submit a Form W3 to the SSA. This means that as long as any income, tax, Medicare, or social security is withheld; or more than $600 is paid in wages, an LLC must submit Form W3.

 

Businesses are required by law to submit employee payroll information and data on their earnings, this is done through the submission of two documents: Form W2 and Form W3. The latter of the two is important because it provides an aggregated summary of the data on Form W2 to the SSA and IRS, who use this information to assess whether a business has paid its various payroll taxes correctly.

 

It is for this reason that it is recommended to avoid copying information directly from Form W2, however tempting it may be. Doing so would completely negate Form W3 as a device for verifying the accuracy of the information input on Form W2. Instead, the information should be input directly from an LLC’s payroll records.

 

How To File W3 Form

If your LLC must submit a File W3, the next thought you will naturally begin to wonder about is how to do that. Filing can either be done by yourself - electronically via the SSA’s Business Services Online (BSO) platform or via the mail - or with the help of an accountant.

 

Note that while accountants may seem appealing since the duty can be completely delegated to them, granting you peace of mind, this luxury does come at a cost. Consider using payroll software to handle these duties which perfectly balances cost and the delegation of this duty.

 

Concluding Remarks

On balance, the importance of W3 Forms for LLCs cannot be understated - they have to be completed accurately, and in a timely manner (the annual deadline is the 31st of January). Not doing so can incur some heavy penalties for businesses that are best avoided through the use of payroll software or hiring an accountant. To learn more, LLC University has a great resource on W3 Forms that is worth taking advantage of.