A sole proprietor operates a small business as an individual owner, either as an independent contractor or an employer. If you are a sole proprietor and you pay employees, you must provide a W-2 to each employee at the end of the year. This form generally includes information about the employee's annual wages, income tax and your business information. When completing an employee's W-2, you must include your federal employer identification number, which you should have obtained from the Internal Revenue Service prior to hiring employees. After completing the W-2, you must supply a copy to the employee and the Social Security Administration.
Obtain a copy of Form W-2. If you are going to file the form through the mail, you can obtain a copy of Form W-2 from the IRS website. If you would rather file the forms electronically, you must create an account through the Social Security Administration website, which allows you to create and submit Form W-2 online. To create an account and begin using the online form, refer to the Social Security Administration – Business Online Services website.
Enter the employee’s information in Boxes A, E and F on Form W-2. Enter your business’s information in Boxes B and C. If your business uses control numbers to identify each unique W-2, enter the control number in Box D. This field is optional.
Enter the employee’s wages in Boxes 1, 3 and 5 and federal income tax withholdings in Boxes 2, 4 and 6. If the employee receives tips, enter the total reported amount in Box 8. Enter any additional withholdings in Box 12, such as contributions to a retirement plan and insurance premiums.
Use Box 15 through Box 20 to provide state and local income tax withholdings, if applicable.
Obtain Form W-3, which is a statement that contains all the details included in Form W-2. If you are filing through the mail, you can obtain the form from the IRS website. If you are filing electronically through the Social Security Administration website, you can obtain the form through the Business Online Services.
Supply Form W-2, Copies B, C and 2, to the employee by Jan. 31.
Submit Form W-2, Copy A, and Form W-3 to the Social Security Administration either through the mail or electronically. If you are mailing Form W-2 and Form W-3, mail the forms to the address listed on the W-2 instructions. You must file these forms by the last day of February if you are filing through the mail or the last day of March if you are filing electronically.
Submit Form W-2, Copy 1, to the employee’s state department of revenue, if applicable. Depending on the state’s procedure, you might be able to submit the form electronically. For more information, contact the state’s department of revenue.
If you are required to submit 250 or more W-2 forms to the Social Security Administration, you must file the forms electronically. Using Form 944 or Form 941, the quarterly or annual income tax forms, verify the amounts listed on Form W-3. If you pay quarterly taxes, add the amounts from all four 944 forms, and make sure the amount listed on Form W-3 matches. If you pay annual taxes, verify that the amount listed on Form 941 matches the amount on Form W-3. Retain Form W-2, Copy D, for your business records.