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Explained: How Forms 941 and W-2 Relate to Each Other

Lauren DeBisschop
Oct 11, 2023
5 min

Discover the important relationship between Forms 941 and W-2 before year-end.

Table of Contents:

Navigating through IRS compliance and understanding the pivotal relationship between Forms 941 and W-2, especially during the year-end tax filing season, is crucial for payroll professionals. Ensuring accurate and reconciled information on these forms not only safeguards against discrepancies but also fortifies your adherence to federal tax regulations.

That's why it's essential to dedicate time to reconcile these documents before distribution. By doing so, you save both you and your employees from future confusion and work.

In this blog, we dive into the details of each form and explore the significant relationship between them.

With the start of the new year approaching fast, there is no better time to get working on your year-end. We provide one solution for all your W-2s, 1099s, and other year-end forms. Contact us today to get started!

What is IRS Form 941?

IRS Form 941, also known as the Employer's Quarterly Federal Tax Return, is a document employers must file every quarter to report wages, tips, and other compensation paid to employees, as well as the employer's portion of FICA taxes.

By filling out this form, employers report federal income tax withholdings, Social Security tax, and Medicare tax. The IRS uses this information to track employee payments and ensure employers are contributing their fair share of FICA taxes.

What is Form W-2?

Form W-2, or the Wage and Tax Statement, plays a crucial role in payroll and tax reporting. Employers use this form to report wages, tips, and other compensation paid to employees throughout the year.  

Form W-2 is essential for accurate income reporting and tax calculations for both employees and the IRS as it provides detailed information such as total earnings, tax withholdings, and retirement plan contributions.

What is the connection between the two forms?

When it comes to IRS Form 941 and the W-2, the most important point to remember is that both involve reporting employee wages. Form 941 provides the IRS with a quarterly snapshot of employment taxes, while the W-2 serves as an individual employee's record of earnings and tax withholdings for the entire year.

The cumulative totals from the quarterly filed 941 forms, including any corrections, should match the cumulative total of all W-2s issued under the same Employer Identification Number (EIN). It's essential to use the correct limitation based on the applicable filing year if any employees' wages and tips exceed the taxable wage base for Social Security. For tax year 2023, the limitation is $160,200.

Reconciling Forms 941 and W-2

Employers are responsible for ensuring that the information reported on Form 941 matches the information on each employee's W-2. This not only includes the cumulative totals for wages, tips, and taxes, but also includes names, social security numbers, and other relevant details.

Here are the critical items that must match across documents:

  • Employer identification number (EIN)
  • Wages, tips, and other compensation
  • Federal income tax withheld
  • Taxable social security wages and tips
  • Qualified sick leave wages
  • Qualified family leave wages
  • Social security wages and tips
  • Taxable Medicare wages
  • Medicare wages and tips

Read more: Understanding Form 940 and Form 941: Your Tax Filing Guide | Greenshades

Avoiding Common Mistakes in Forms 941 and W-2 Reconciliation

When completing these forms, be mindful of common mistakes that can be costly.  

  • Incorrect reporting of Wages: Double and triple-check all numbers before submitting forms to avoid potential errors that have significant consequences.
  • Mismatched FEINS: Ensure that your Federal Employer Identification Numbers (FEINs) match, as the IRS scrutinizes W-2s without matching 941 forms. In some cases, this can cause delays in employee refunds and result in IRS penalty notices.
  • Submitting Forms More than Once: Attempting to submit an additional W-2 file that is not a mirror image, even for corrections, can result in processing errors and potentially double the income and taxes for matching social security numbers.

Making Corrections to Year-End Forms

Mistakes are fixable, but it's wise to invest some due diligence upfront to submit everything correctly from the start. By doing so, you can save yourself the hassle of correcting forms later.

If discrepancies are found, thoroughly research the differences and make corrections before distributing the W-2s and filing the fourth quarter Form 941. Correcting forms that haven't been dispersed or filed yet is much easier. If a correction is needed for a previous quarter of Form 941, address it promptly to avoid responding to an IRS notice.

Ensure seamless IRS compliance and accurate year-end tax filing with Greenshades. Contact us today to explore our comprehensive solutions for reconciling Forms 941 and W-2!

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