Creating a W-2 for an employee means compiling a full year of payroll data into IRS Form W-2, then distributing copies to both the employee and the Social Security Administration. For the 2026 tax year, both deadlines fall on February 1, 2027. The process is straightforward once you understand what goes in each box, but accuracy matters because mistakes can trigger penalties and create headaches at tax time for you and your employees.
What You Need Before You Start
Every W-2 pulls from records you should already have on file. Before you sit down to fill out the form, gather these for each employee:
- Employee’s full legal name and Social Security number, taken from the W-4 they completed when hired
- Your Employer Identification Number (EIN), assigned by the IRS when you registered your business
- Your state tax ID number, if your state collects income tax
- Total wages paid during the calendar year, broken out by federal taxable wages, Social Security wages, and Medicare wages (these amounts can differ)
- All tax withholdings, including federal income tax, Social Security tax, Medicare tax, and any state or local income taxes
- Pre-tax deductions such as retirement plan contributions, health insurance premiums paid through a cafeteria plan, and dependent care benefits
- Other compensation like tips, group-term life insurance over $50,000 in coverage, and third-party sick pay
If you run payroll through software like QuickBooks, Gusto, or ADP, most of this data is already tracked and the software can generate the W-2 automatically. If you handle payroll manually or with spreadsheets, you’ll need to total these figures yourself from your payroll records.
Key Boxes on Form W-2
Form W-2 has 20 labeled boxes, but most small employers only need to fill a subset of them. Here’s what the critical ones mean in plain terms:
- Box 1 (Wages, tips, other compensation): The employee’s total taxable income for federal purposes. This is gross pay minus pre-tax deductions like 401(k) contributions and Section 125 health plan premiums.
- Box 2 (Federal income tax withheld): The total federal income tax you deducted from their paychecks all year.
- Box 3 (Social Security wages): Wages subject to Social Security tax. This often differs from Box 1 because some pre-tax deductions reduce federal taxable income but not Social Security wages. It’s capped at the annual Social Security wage base.
- Box 4 (Social Security tax withheld): The employee’s share of Social Security tax, which is 6.2% of Box 3.
- Box 5 (Medicare wages): Wages subject to Medicare tax. There is no wage cap for Medicare, so this number is often higher than Box 3 for high earners.
- Box 6 (Medicare tax withheld): The employee’s share of Medicare tax, which is 1.45% of Box 5, plus an additional 0.9% on wages above $200,000.
- Box 12: A catch-all for specific items identified by letter codes. Common entries include Code D for 401(k) deferrals, Code DD for the total cost of employer-sponsored health coverage, and Code W for employer contributions to a health savings account.
- Box 13: Checkboxes indicating whether the employee is a statutory employee, participated in a retirement plan, or received third-party sick pay.
- Boxes 15 through 20: State and local tax information, including your state ID, state wages, and state and local taxes withheld.
Leave any box blank if it doesn’t apply. Do not enter zero in boxes that aren’t relevant.
Three Ways to Create and File W-2s
Payroll Software
If you already use payroll software, generating W-2s is typically a few clicks. The software pulls your year-end totals, populates every box, and lets you print copies for employees or transmit them electronically. Most payroll platforms also handle the SSA filing for you. This is the easiest path if you’re already paying for the service.
SSA’s Free Online Tool
The Social Security Administration offers a free filing option through its Business Services Online (BSO) portal. You can create W-2s directly on the site, which is useful for small employers who don’t use payroll software. To get started, go to the BSO Welcome Page and either sign in or create an account under the “Employers” section. You’ll need a Login.gov or ID.me account to access the system. Once logged in, you can enter wage data for each employee, generate the forms, and submit them electronically to the SSA in one step.
BSO is completely free regardless of how many W-2s you file. It’s designed for CPAs, accountants, and individual business owners alike. The tradeoff is that you still need to print and distribute paper copies (or provide electronic copies) to your employees separately.
Standalone W-2 Software
If you want something between full payroll software and the SSA’s bare-bones portal, dedicated W-2 preparation tools exist. Products like ezW2 start around $49 and let you enter employee data, print IRS-approved forms on plain paper, and e-file with the SSA. These tools are a good fit if you handle payroll manually but want something more polished than the government site for producing the forms.
Distributing Copies to the Right Places
Each W-2 produces multiple copies, and each one goes somewhere specific:
- Copy A: Filed with the Social Security Administration
- Copy B: Given to the employee for filing with their federal tax return
- Copy C: Given to the employee for their personal records
- Copy 2: Given to the employee for filing with their state or local tax return
- Copy D: Kept in your own records as the employer
You must furnish Copies B, C, and 2 to each employee by February 1 following the tax year. The same February 1 deadline applies to filing Copy A with the SSA, whether you file on paper or electronically. If an employee requests their W-2 earlier, you’re not required to provide it before January, since you need the full calendar year’s data to complete it accurately.
You can deliver employee copies by hand, by mail, or electronically if the employee has consented to electronic delivery. If you mail them, use the employee’s last known address and give yourself enough lead time to meet the deadline.
Filing Form W-3 as a Summary
Along with your individual W-2 forms, you need to file Form W-3, which is a transmittal summary that totals up the wages and withholdings from all your W-2s. Think of it as a cover sheet. If you file electronically through BSO or payroll software, the W-3 is usually generated automatically. If you file paper forms, you’ll fill out the W-3 by hand, adding up the corresponding boxes across all your employees’ W-2s.
How to Fix Mistakes
If you discover an error after filing, whether it’s a wrong Social Security number, an incorrect wage amount, or a missing entry, you correct it by filing Form W-2c (Corrected Wage and Tax Statement). You submit the W-2c to the SSA and provide a copy to the affected employee. There is no deadline penalty for filing a correction, but you should do it as soon as you find the error so the employee can file an accurate tax return.
Common mistakes that trigger W-2c filings include transposing digits in a Social Security number, forgetting to include a bonus paid in December, and miscalculating pre-tax deductions that affect Box 1. Catching these before the February 1 deadline lets you void the original and issue a corrected W-2 without needing the W-2c process at all.
Penalties for Late or Incorrect W-2s
The IRS imposes penalties for filing late, filing with incorrect information, or failing to file at all. Penalty amounts increase the later you file past the deadline, and they apply per form. For a small business with a handful of employees, a few weeks’ delay may cost a modest amount, but for larger employers the penalties add up quickly. Filing electronically and double-checking your data before the deadline is the simplest way to avoid them.
If you realize you won’t make the February 1 deadline, you can request an extension by submitting Form 8809 to the IRS. This gives you additional time to file with the SSA, though it does not extend the deadline for providing copies to your employees.