Reconciling Forms W-2, W-3, and 941

When there are discrepancies between Forms 941 filed with the IRS and Forms W-2 and W-3 filed with the SSA, the IRS must contact the employer to resolve the discrepancies. This costs time and money for the Government and for the employer.

To help reduce discrepancies:

• Report bonuses as wages and as social security and Medicare wages on Forms W-2 and 941
• Report both social security and Medicare wages and taxes separately on Forms W-2, W-3, and 941
• Report employee portion of social security taxes on Form W-2 in the Box for social security tax withheld (Box 4), not as social security wages
• Report employee portion of Medicare taxes on Form W-2 in the Box for Medicare tax withheld (Box 6), not as Medicare wages
• Make sure the social security wage amount for each employee does not exceed the annual social security wage base limit
• Do not report noncash wages that are not subject to social security or Medicare taxes as social security or Medicare wages
• If an EIN is used on any Form 941 for the year that is different from the EIN reported on Form W-3, enter the other EIN on Form W-3 in the Box for “Other EIN used this year”
• Be sure that the amounts on Form W-3 are the total of amounts from Forms W-2, and
• Reconcile Form W-3 with the four quarterly Forms 941 by comparing amounts reported for:
  • Federal income tax withholding
  • Social security wages, social security tips, and Medicare wages and tips. Form W-3 should include Form 941 adjustments only for the current year (that is, if the Form 941 adjustments include amounts for a prior year, do not report those prior year adjustments on the current-year Forms W-2 and W-3)
  • Social security and Medicare taxes. The amounts shown on the four quarterly Forms 941, including current-year adjustments should be approximately twice the amounts shown on Form W-3. This is because Form 941 includes both the employer and employee portions of social security and Medicare taxes

Do not report on Form 941 backup withholding or federal income tax withholding on nonpayroll payments such as pensions, annuities, and gambling winnings. Nonpayroll withholding must be reported on Form 945, Annual Return of Withheld Federal Income Tax. See the separate Instructions for Form 945 for details.

Federal income tax withholding required to be reported on Forms 1099 or W-2G must be reported on Form 945. Only taxes and withholding properly reported on Form W-2 should be reported on Form 941.

Amounts reported on Forms W-2, W-3, and 941 may not match for valid reasons. If they do not match, the employer should determine that the reasons are valid. Retain the reconciliation so that a record is exists of why amounts did not match in case there are inquiries from the IRS or the SSA.

See the Instructions for Schedule D (Form 941) if there is a need to explain any discrepancies that were caused by an acquisition, statutory merger, or consolidation.

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