Extension to file.    You may request an automatic extension of time to file Form W-2 by sending Form 8809, Request for Extension of Time To File Information Returns, to the address shown on Form 8809. You must request the extension before the due date of Forms W-2. You will have an additional 30 days to file. See Form 8809 for details.

  

  Even if you request an extension to file Form W-2, you must still furnish Form W-2 to your employees by January 31, 2005. But see Extension to furnish Forms W-2 to employees on page 3.

  

Extension to furnish Forms W-2 to employees.    You may request an extension of time to furnish Forms W-2 to employees by sending a letter to:

  Mail your letter on or before the due date for furnishing Forms W-2 to employees. It must include:

Undeliverable Forms W-2.    Keep for four years any employee copies of Forms W-2 that you tried to deliver but could not. Do not send undeliverable Forms W-2 to the SSA.

Adoption benefits.    Amounts paid or expenses incurred by an employer for qualified adoption expenses under an adoption assistance program are not subject to income tax withholding and are not reportable in box 1. However, these amounts (including adoption benefits paid from a section 125 (cafeteria) plan, but not including adoption benefits forfeited from a cafeteria plan) are subject to social security, Medicare, and railroad retirement taxes and must be reported in boxes 3
and 5. Also, the total amount must be reported in box 12 with code T.

  See Notice 97-9, 1997-1 C.B. 365, for more information on adoption benefits. You can find Notice 97-9 on page 35 of Internal Revenue Bulletin 1997-2 at www.irs.gov/pub/irs-irbs/irb97-02.pdf. Advise your employees to get Pub. 968, Tax Benefits for Adoption.

Agent reporting.    Generally, an agent who has an approved Form 2678, Employer Appointment of Agent, should enter the agent's name as the employer in box c of Form W-2, and file only one Form W-2 for each employee. However, if the agent: (a) is acting as an agent for two or more employers or is an employer and is acting as an agent for another employer and (b) pays social security wages for more than one employer in excess of the wage base to an individual, special reporting for payments to that employee is needed.

  If both (a) and (b) above apply, the agent must file separate Forms W-2 for the affected employee reflecting the wages paid by each employer. On each Form W-2, the agent should enter the following in box c of Form W-2:

(Name of agent)

Agent for (name of employer)

Address of agent.

  Each Form W-2 should reflect the EIN of the agent in box b. An agent files one Form W-3 for all of the Forms W-2 and enters its own information in boxes e, f, and g of Form W-3 as it appears on the agent's related employment tax returns (e.g., Form 941). Enter the client-employer's EIN in box h of Form W-3 if the Forms W-2 relate to only one employer (other than the agent); if not, leave box h blank. See Rev. Proc. 70-6, 1970-1 C.B. 420, for procedures to be followed in applying to be an agent.

  

  Generally, an agent is not responsible for refunding excess social security or railroad retirement (RRTA) tax on employees. If an employee worked for more than one employer during 2004 and had more than $5,449.80 in social security and Tier 1 RRTA tax withheld (or more than $3,189.90 in Tier 2 RRTA tax withheld), he or she should claim the excess on the appropriate line of Form 1040 or Form 1040A.

Archer MSA.    An employer's contribution to an employee's Archer MSA is not subject to income tax withholding, or social security, Medicare, or railroad retirement taxes if it is reasonable to believe at the time of the payment that the contribution will be excludable from the employee's income. However, if it is not reasonable to believe at the time of payment that the contribution will be excludable from the employee's income, employer contributions are subject to income tax withholding and social security and Medicare taxes (or railroad retirement taxes, if applicable) and must be reported in boxes 1, 3, and 5.

  You must report all employer contributions to an Archer MSA in box 12 of Form W-2 with code R. Employer contributions to an Archer MSA that are not excludable from the income of the employee also must be reported in box 1.

  An employee's contributions to an Archer MSA are includible in income as wages and are subject to income tax withholding and social security and Medicare taxes (or railroad retirement taxes, if applicable). Employee contributions are deductible, within limits, on the employee's Form 1040.

  See Notice 96-53, 1996-2 C.B. 219 and Pub. 969, Medical Savings Accounts (MSAs) for more information. You can find Notice 96-53 on page 5 of Internal Revenue Bulletin 1996-51 at www.irs.gov/pub/irs-irbs/irb96-51.pdf.

Clergy and religious workers.    For certain members of the clergy and religious workers who are not subject to social security and Medicare taxes as employees, boxes 3 and 5 of Form W-2 should be left blank. You may include a minister's parsonage and/or utilities allowance in box 14. For information on the rules that apply to ministers and certain other religious workers, see Pub. 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and
section 4, Religious Exemptions, of Pub. 15-A.

Corrections.    Use the current revision (December 2002) of Form W-2c, Corrected Wage and Tax Statement, to correct errors (such as incorrect name, SSN, or amount) on a previously filed Form W-2.

   If your employee was given a new social security card following an adjustment to his or her resident status that shows a different name or SSN, file a Form W-2c for the most current year only.

  File Form W-3c, Transmittal of Corrected Wage and Tax Statements, whenever you file a Form W-2c with the SSA, even if you are only filing a Form W-2c to correct an employee's name or SSN. However, see Incorrect address on employee's Form W-2 below for information on correcting an employee's address. Use Form W-3c to correct a previously filed Form W-3.

  If you discover an error on Form W-2 after you issue it to your employee but before you send it to the SSA, check the “Void” box at the top of the form on Copy A. Prepare a new Form W-2 with the correct information, and send Copy A to the SSA. Write “CORRECTED” on the employee's new copies (B, C, and 2), and furnish them to the employee. If the “Void” Form W-2 is on a page with a correct Form W-2, send the entire page to the SSA. The “Void” form will not be processed. Do not write “CORRECTED” on Copy A of Form W-2.

  If you are making an adjustment in 2004 to correct social security and Medicare taxes for a prior year, you must file
Form 941c, Supporting Statement To Correct Information, with your Form 941 or Form 943 in the return period that you find the error, and issue the employee a Form W-2c for the prior year. If you are correcting social security or Medicare wages or tips, also file the entire Copy A page of Form W-2c and Form W-3c with the SSA to correct the social security records and any other items on the original Form W-2 (or previously filed Form W-2c) that were in error.

Deceased employee's wages.    If an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death.

  If you made the payment in the same year that the employee died, you must withhold social security and Medicare taxes on the payment and report the payment on the employee's Form W-2 only as social security and Medicare wages to ensure proper social security and Medicare credit is received.

  On the employee's Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4
and 6. Do not show the payment in box 1.

   If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security and Medicare taxes.

  Whether the payment is made in the year of death or after the year of death, you also must report it in box 3 of Form 1099-MISC, Miscellaneous Income, for the payment to the estate or beneficiary. Use the name and taxpayer identification number (TIN) of the payment recipient on Form 1099-MISC.

  

  Employer X also must complete Form 1099-MISC as follows:

  If Employer X made the payment after the year of death, the $3,000 would not be subject to social security and Medicare taxes and would not be shown on Form W-2. However, the employer would still file Form 1099-MISC.

Educational assistance programs.    A $5,250 exclusion for employer-provided educational assistance applies to benefits provided to your employees under an educational assistance program. See Pub. 970, Tax Benefits for Education, and section 2 of Pub. 15-B for more information. Also see the instructions for box 1 on page 7.

Election workers.    Report on Form W-2 payments of $600 or more to election workers for services performed in state, county, and municipal elections. File Form W-2 for payments of less than $600 paid to election workers if social security and Medicare taxes were withheld under a section 218 (Social Security Act) agreement. Do not report election worker payments on Form 1099-MISC.

Employee business expense reimbursements.    Reimbursements to employees for business expenses must be reported as follows:

  For more information on accountable plans, nonaccountable plans, amounts treated as substantiated under a per diem or mileage allowance, the standard mileage rate, the per diem substantiation method, and the high-low substantiation method, see Pub. 463, Travel, Entertainment, Gift, and Car Expenses; Pub. 1542, Per Diem Rates; and section 5 of Circular E (Pub.15).

Employee's taxes paid by employer.    If you paid your employee's share of social security and Medicare taxes rather than deducting them from the employee's wages, you must include these payments as wages subject to income tax withholding and social security, Medicare, and Federal unemployment (FUTA) taxes. Generally, this increase in your employee's wages for your payment of the employee's social security and Medicare taxes is also subject to employee social security and Medicare taxes. The amount to include as wages is determined by using the formula contained in the discussion of Employee's Portion of Taxes Paid by Employer in
section 7 of Pub. 15-A.

  

   This does not apply to household and agricultural employers. If you pay a household or agricultural employee's social security and Medicare taxes, you must include these payments in the employee's wages. However, the wage increase due to the tax payments is not subject to social security, Medicare, or FUTA taxes. See the Instructions for Schedule H (Form 1040), Household Employers for information on completing Forms W-2 and W-3.

Fringe benefits.    Include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Although not required, you may include the total value of fringe benefits in box 14 (or on a separate statement). However, if you provided your employee a vehicle and included 100% of its annual lease value in the employee's income, you must separately report this value to the employee in box 14 (or on a separate statement). The employee can then figure the value of any business use of the vehicle and report it on
Form 2106, Employee Business Expenses. Also see Pub. 15-B for more information.

  

  If you used the commuting rule or the vehicle cents-per-mile rule to value the personal use of the vehicle, you cannot include 100% of the value of the use of the vehicle in the employee's income. See Pub. 15-B.

Golden parachute payments.    Include any golden parachute payments in boxes 1, 3, and 5 of Form W-2. Withhold income, social security, and Medicare taxes as usual and report them in
boxes 2, 4, and 6, respectively. Excess parachute payments are also subject to a 20% excise tax. If the excess payments are considered wages, withhold the 20% excise tax and include it in box 2 as income tax withheld. Also report the excise tax in box 12 with code K. For definitions and additional information, see Regulations section 1.280G-1 and Rev. Proc. 2003-68. You can find Rev. Proc. 2003-68 on page 398 of Internal Revenue Bulletin 2003-34 at www.irs.gov/pub/irs-irbs/irb03-34.pdf.

Government employers.    Federal, state, and local agencies have two options for reporting their employees' wages that are subject only to Medicare tax for part of the year and full social security and Medicare taxes for part of the year.

  Option one (which the SSA prefers) is to file a single Form W-2 with the Medicare-only wages and the social security and Medicare wages combined. The Form W-3 must have the “941” box checked in box b.

  Option two is to file two Forms W-2 and two Forms W-3. File one Form W-2 for wages subject to Medicare tax only. Be sure to check the “Medicare govt. emp.” box in box b of Form W-3. File the second Form W-2 for wages subject to both social security and Medicare taxes with the “941” box checked in
box b of Form W-3.

Group-term life insurance.    If you paid for group-term life insurance over $50,000 for an employee or a former employee, you must report the taxable cost of excess coverage, determined by using the table in section 2 of Pub.15-B, in
boxes 1, 3, and 5 of Form W-2. Also, show the amount in
box 12 with code C. For employees, you must withhold social security and Medicare taxes, but not income tax. Former employees must pay the employee part of social security and Medicare taxes on the taxable cost of group-term life insurance over $50,000 on Form 1040. You are not required to collect those taxes. However, you must report the uncollected social security tax with code M and the uncollected Medicare tax with code N in box 12 of Form W-2.

Health Savings Account.    An employer's contribution to an employee's Health Savings Account (HSA) is not subject to income tax withholding, or social security, Medicare, or railroad retirement taxes (or FUTA tax) if it is reasonable to believe at the time of the payment that the contribution will be excludable from the employee's income. However, if it is not reasonable to believe at the time of payment that the contribution will be excludable from the employee's income, employer contributions are subject to income tax withholding and social security and Medicare taxes (or railroad retirement taxes, if applicable) and must be reported in boxes 1, 3, and 5 (and on Form 940).

  You must report all employer contributions to an HSA in
box 12 of Form W-2 with code W. Employer contributions to an HSA that are not excludable from the income of the employee also must be reported in box 1.

  An employee's contributions to an HSA are includible in income as wages and are subject to income tax withholding and social security and Medicare taxes (or railroad retirement taxes, if applicable). Employee contributions are deductible, within limits, on the employee's Form 1040.

Lost Form W-2—reissued statement.    If an employee loses a Form W-2, write “REISSUED STATEMENT” on the new copy and furnish it to the employee. Do not send Copy A of the reissued Form W-2 to the SSA. Employers are not prohibited (by the Internal Revenue Code) from charging a fee for the issuance of a duplicate Form W-2.

Moving expenses.    Report moving expenses as follows:

Railroad employers.    Railroad employers must file Form W-2 to report their employees' wages and income tax withholding in boxes 1 and 2. Reporting on magnetic media (or electronic reporting) may be required; see Magnetic media/electronic reporting on page 2.

  If an employee is covered by social security and Medicare, also complete boxes 3, 4, 5, 6, and 7 of Form W-2 to show the social security and Medicare wages and the amounts withheld for social security and Medicare taxes. On the Form W-3 used to transmit these Forms W-2, check the “941” box in box b.

  For employees covered by RRTA tax, you also must report the Tier 1 and Tier 2 taxes withheld in box 14 of Form W-2. Label them “Tier 1 tax” and “Tier 2 tax.” Boxes 3, 4, 5, 6, and 7 apply only to covered social security and Medicare employees and are not to be used to report railroad retirement wages and taxes. On the Form W-3 used to transmit these Forms W-2, check the “CT-1” box in box b.

Repayments.    If an employee repays you for wages received in error, do not offset the repayments against current year's wages unless the repayments are for amounts received in error in the current year. Repayments made in the current year, but related to a prior year or years, require special tax treatment by employees in some cases. You may advise the employee of the total repayments made during the current year and the amount (if any) related to prior years. This information will help the employee account for such repayments on his or her Federal income tax return.

  If the repayment was for a prior year, you must file Form W-2c with the SSA to correct only social security and Medicare wages and taxes. Do not correct “Wages” in box 1 on Form W-2c for the amount paid in error. See section 13 of Circular E (Pub 15) or section 9 of Circular A (Pub. 51), for information on reporting adjustments to Form 941 or Form 943.

  

  Tell your employee that the wages paid in error in a prior year remain taxable to the employee for that year. This is because the employee received and had use of those funds during that year. The employee is not entitled to file an amended return (Form 1040X) to recover the income tax on these wages. Instead, the employee is entitled to a deduction (or a credit, in some cases) for the repaid wages on his or her Form 1040 for the year of repayment.

Scholarship and fellowship grants.    Give a Form W-2 to each recipient of a scholarship or fellowship grant only if you are reporting amounts includible in income under section 117(c) (relating to payments for teaching, research, or other services required as a condition for receiving the qualified scholarship). Also see Pub. 15-A and Pub. 970. These payments are subject to income tax withholding. However, their taxability for social security and Medicare taxes depends on the nature of the employment and the status of the organization. See Students in section 15 of Circular E (Pub.15).

Sick pay.    If you had employees who received sick pay in 2004 from an insurance company or other third-party payer and the third party notified you of the amount of sick pay involved, you may be required to report the information on the employees' Forms W-2. If the insurance company or other third-party payer did not notify you in a timely manner about the sick pay payments, it must prepare Forms W-2 and W-3 for your employees showing the sick pay. See Sick Pay Reporting in section 6 of Pub. 15-A for specific reporting instructions.

SIMPLE retirement account.    An employee's salary reduction contributions to a SIMPLE (savings incentive match plan for employees) retirement account are not subject to income tax withholding but are subject to social security, Medicare, and railroad retirement taxes. Do not include an employee's contribution in box 1 but do include it in boxes 3 and 5. An employee's total contribution also must be included in box 12 with code D or S.

  An employer's matching or nonelective contribution to an employee's SIMPLE is not subject to income tax withholding or social security, Medicare, or railroad retirement taxes and is not to be shown on Form W-2.

  See Notice 98-4, 1998-1 C.B. 269, for more information on SIMPLE retirement accounts. You can find Notice 98-4 on
page 25 of Internal Revenue Bulletin 1998-2 at www.irs.gov/pub/irs-irbs/irb98-02.pdf.

Successor/predecessor employers.    If you buy or sell a business during the year, see Rev. Proc. 96-60, 1996-2 C.B. 399, for information on who must file Forms W-2 and employment tax returns. You can find Rev. Proc. 96-60 on
page 24 of Internal Revenue Bulletin 1996-53 at www.irs.gov/pub/irs-irbs/irb96-53.pdf.

Terminating a business.    If you terminate your business, you must provide Forms W-2 to your employees for the calendar year of termination by the due date of your final Form 941. You must also file Forms W-2 with the SSA by the last day of the month that follows the due date of your final Form 941. However, if any of your employees are immediately employed by a successor employer, see Successor/predecessor employers above. Also, see Rev. Proc. 96-57, 1996-2 C.B. 389, for information on automatic extensions for furnishing Forms W-2 to employees and filing Forms W-2. You can find Rev. Proc. 96-57 on page 14 of Internal Revenue Bulletin 1996-53 at www.irs.gov/pub/irs-irbs/irb96-53.pdf.

USERRA makeup amounts to a pension plan.    If an employee returned to your employment after military service and certain makeup amounts were contributed to a pension plan for a prior year(s) under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), report the prior year contributions separately in
box 12. See the TIP above Code D on page 9. You also may report certain makeup amounts in box 14. See the box 14 instructions on page 10.

  Instead of reporting in box 12 (or box 14), you may choose to provide a separate statement to your employee showing USERRA makeup contributions. The statement must identify the type of plan, the year(s) to which the contributions relate, and the amount contributed for each year.

Failure to file correct information returns by the due date.   If you fail to file a correct Form W-2 by the due date and cannot show reasonable cause, you may be subject to a penalty as provided under code section 6721. The penalty applies if you:

  The amount of the penalty is based on when you file the correct Form W-2. The penalty is:

  

  If you do not file corrections and you do not meet any of the exceptions to the penalty stated below, the penalty is $50 per information return.

  

Failure to furnish correct payee statements.   If you fail to provide correct payee statements (Forms W-2) to your employees and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to provide the statement by January 31, if you fail to include all information required to be shown on the statement, or if you include incorrect information on the statement.

  The penalty is $50 per statement, no matter when the correct statement is furnished, with a maximum of $100,000 per year. The penalty is not reduced for furnishing a correct statement by August 1.

Civil damages for fraudulent filing of Forms W-2.   If you willfully file a fraudulent Form W-2 for payments that you claim you made to another person, that person may be able to sue you for damages. You may have to pay $5,000 or more.

How to complete Form W-2.    Form W-2 is a six-part form. Please ensure that all copies are legible. Send Copy A to
the SSA; Copy 1 to your state, city, or local tax department; and Copies B, C, and 2 to your employee. Keep Copy D, and a copy of Form W-3, with your records for 4 years.

  Type the entries on Form W-2 using black ink in 12-point Courier font, if possible. Because Copy A is read by machine, handwritten entries or the use of inks other than black to make entries on the form hinder processing by the SSA. Do not use script type, inverted font, italics, or dual case alpha characters. It is important that entries in the boxes do not cross one or more of the vertical or horizontal lines that separate the boxes. Please do not erase, whiteout, or strike over an entry. Make all dollar entries without the dollar sign and comma but with the decimal point (00000.00). Show the cents portion of the money amounts. If a box does not apply, leave it blank.

  Send the whole Copy A page of Form W-2 with Form W-3 to the SSA even if one of the Forms W-2 on the page is blank or void. Do not staple Forms W-2 together or to Form W-3. Also, if possible, please file Forms W-2 either alphabetically by employees' last names or numerically by employees' SSNs. This will help the SSA locate specific forms.

Calendar year basis.    The entries on Form W-2 must be based on wages paid during the calendar year. Use Form W-2 for the correct tax year. For example, if the employee worked from December 21, 2004, through January 3, 2005, and the wages for that period were paid on January 5, 2005, include those wages on the 2005 Form W-2.

Multiple forms.    If necessary, you can issue more than one Form W-2 to an employee. For example, you may need to report more than four coded items in box 12 or you may want to report other compensation on a second form. If you issue a second Form W-2, complete boxes b, c, d, e, and f with the same information as on the first Form W-2. Show any items that were not included on the first Form W-2 in the appropriate boxes. Also, see the TIP under Box 12—Codes on page 9.

  Do not report the same Federal tax data to the SSA on more than one Copy A.

Box a—Control number.   You may use this box to identify individual Forms W-2. Make certain that entries do not cross over into the form identification box (22222). You do not have to use this box.

Void.    Check this box when an error is made on Form W-2 and you are voiding it because you are going to complete a new Form W-2. Be careful not to include any amounts shown on “Void” forms in the totals that you enter on Form W-3. See Corrections on page 4.

Box b—Employer identification number.    Show the employer identification number (EIN) assigned to you by the IRS (00-0000000). This should be the same number that you used on your Federal employment tax returns (Form 941, Form 943, or Form CT-1). Do not use a prior owner's EIN. If you do not have an EIN when filing Forms W-2, enter “Applied For” in box b; do not use your SSN. You can get an EIN by filing Form SS-4, Application for Employer Identification Number. Also see Agent reporting on page 3.

Box c—Employer's name, address, and ZIP code.   This entry should be the same as shown on your Form 941, Form 943, or Form CT-1. Also see Agent reporting on page 3.

Box d—Employee's social security number.    Enter the number shown on the employee's social security card. If the employee does not have a card, he or she should apply for one by completing Form SS-5, Application for a Social Security Card. If the employee has applied for a card but the number is not received in time for filing, enter “Applied For” in box d.

  Ask the employee to inform you of the number and the exact way that his/her name is printed on the card when it is received. Then correct your previous report by filing Form W-2c showing the employee's SSN. If the employee needs to change his or her name from that shown on the card, the employee should call the SSA at 1-800-772-1213.

Boxes e and f—Employee's name and address.   Enter the name as shown on your employee's social security card (first, middle initial, last). Do not enter “Jr.,” “Sr.,” etc. on Copy A even if such a suffix appears on the card. However, you can include the suffix on all other copies of Form W-2. If the name does not fit, you may show first name initial, middle initial, and last name (and ignore the vertical line). If the name has changed, the employee must get a corrected card from any SSA office. Use the name on the original card until you see the corrected one. Do not show titles or academic degrees, such as “Dr.,” “RN,” or “Esq.,” at the beginning or end of the employee's name.

   Include in the address the number, street, apartment or suite number (or P.O. box number if mail is not delivered to a street address). For a foreign address, give the information in the following order: city, province or state, and country. Follow the country's practice for entering the postal code. Do not abbreviate the country name.

  Third-party payers of sick pay filing third-party sick pay recap Forms W-2 and W-3 must enter “Third-Party Sick Pay Recap” in place of the employee's name in box e. Also, do not enter the employee's SSN in box d. See Sick Pay Reporting in section 6 of Pub. 15-A.

Box 1—Wages, tips, other compensation.    Show the total wages, tips, and other compensation, before any payroll deductions, that you paid to your employee during the year. Do not include elective deferrals, except section 501(c)(18) contributions. Include the following:

Box 2—Federal income tax withheld.    Show the total Federal income tax withheld from the employee's wages for the year (do not reduce the wages by any advance EIC payments made to the employee). Also include the 20% excise tax withheld on excess parachute payments. See Golden parachute payments on page 5.

Box 3—Social security wages.    Show the total wages paid (before payroll deductions) subject to employee social security tax but not including social security tips and allocated tips. (See Box 7 and Box 8 below.) Generally, noncash payments are considered to be wages. Include employee business expense reimbursements reported in box 1. If you paid the employee's share of social security and Medicare taxes rather than deducting them from wages, see Employee's taxes paid by employer on page 4. The total of boxes 3 and 7 cannot exceed $87,900 (2004 maximum social security wage base).

   Report in box 3 elective deferrals to certain qualified cash or deferred compensation arrangements and to retirement arrangements described in box 12 (codes D, E, F, G, and S) even though the deferrals are not includible in box 1. Amounts deferred under a nonqualified or section 457(b) plan must be included in boxes 3 and/or 5 as social security and/or Medicare wages as of the later of when the services giving rise to the deferral are performed or when there is no substantial forfeiture risk of the rights to the deferred amount. Include elective and nonelective deferrals for purposes of section 457(b) plans.
Also include in box 3:

Box 4—Social security tax withheld.    Show the total employee social security tax (not your share) withheld, including social security tax on tips. Do not reduce this amount by any advance EIC payments made to the employee. For 2004, the amount should not exceed $5,449.80 ($87,900 × 6.2%). Include only taxes withheld (or paid by you for the employee) for 2004 wages and tips. If you paid your employee's share, see Employee's taxes paid by employer on page 4.

Box 5—Medicare wages and tips.    The wages and tips subject to Medicare tax are the same as those subject to social security tax (boxes 3 and 7) except that there is no wage base limit for Medicare tax. Enter the total Medicare wages and tips in box 5. Be sure to enter tips that the employee reported even if you did not have enough employee funds to collect the Medicare tax for those tips. See Box 3 above for payments to report in this box. If you paid your employee's share of taxes, see Employee's taxes paid by employer on page 4.

  If you are a Federal, state, or local agency with employees paying only the 1.45% Medicare tax, enter the Medicare wages in this box. See Government employers on page 5.

Box 6—Medicare tax withheld.    Enter the total employee Medicare tax (not your share) withheld. Include only tax withheld for 2004 wages and tips. Do not reduce this amount by any advance EIC payments made to the employee. If you paid your employee's share of the taxes, see Employee's taxes paid by employer on page 4.

Box 7—Social security tips.    Show the tips that the employee reported to you even if you did not have enough employee funds to collect the social security tax for the tips. The total of boxes 3 and 7 should not be more than $87,900 (the maximum social security wage base for 2004). Report all tips in box 1 along with wages and other compensation.

Box 8—Allocated tips.    If you are a large food or beverage establishment, show the tips allocated to the employee. See the Instructions for Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips. Do not include this amount in boxes 1, 3, 5, or 7.

Box 9—Advance EIC payment.    Show the total paid to the employee as advance earned income credit (EIC) payments.

Box 10—Dependent care benefits.    Show the total dependent care benefits under a dependent care assistance program (section 129) paid or incurred by you for your employee. Include the fair market value (FMV) of employer-provided or employer-sponsored day-care facilities and amounts paid or incurred for dependent care assistance in a section 125 (cafeteria) plan. Report all amounts paid or incurred (regardless of any employee forfeitures), including those in excess of the $5,000 exclusion. This may include (a) the FMV of benefits provided in kind by the employer, (b) an amount paid directly to a day-care facility by the employer or reimbursed to the employee to subsidize the benefit, or (c) benefits from the pre-tax contributions made by the employee to a section 125 dependent care flexible spending account. Include any amounts over $5,000 in boxes 1, 3, and 5. For more information, see Pub. 15-B.

Box 11—Nonqualified plans.   The purpose of box 11 is for the SSA to determine if any part of the amount reported in box 1 or boxes 3 and/or 5 was earned in a prior year. The SSA uses this information to verify that they have properly applied the social security earnings test and paid the correct amount of benefits.

   Show distributions to an employee from a nonqualified plan or a nongovernmental section 457(b) plan. Also report these distributions in box 1. Make only one entry in this box. Distributions from governmental section 457(b) plans must be reported on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., not in box 1 of Form W-2.

   If you did not make distributions this year, show deferrals (plus earnings) under a nonqualified or any section 457(b) plan that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. Also report these amounts in boxes 3 (up to the social security wage base) and box 5. Do not report in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services (i.e., those that have no risk of forfeiture).

  

  If you made distributions and are also reporting prior year deferrals in box 3 and/or 5, do not complete box 11. See Pub. 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration, and Form SSA-131, Employer Report of Special Wage Payments, for instructions on reporting these and other kinds of compensation earned in prior years. However, do not file Form SSA-131 if this situation applies but the employee will not be age 62 or older by the end of that year.

  Unlike qualified plans, nonqualified deferred compensation plans do not meet the qualification requirements for tax-favored status. Nonqualified plans include those arrangements traditionally viewed as deferring the receipt of current compensation. Accordingly, welfare benefit plans, stock option plans, and plans providing dismissal pay, termination pay, or early retirement pay are not nonqualified plans.

  Report distributions from nonqualified or section 457 plans to beneficiaries of deceased employees on Form 1099-R, not on Form W-2.

   Military employers must report military retirement payments on Form 1099-R.

Box 12—Codes.    Complete and code this box for all items described below. Do not report in box 12 any items that are not listed as codes A–W. Also, do not report in box 12 section 414(h)(2) contributions (relating to certain state or local government plans). Instead, use box 14 for these items and any other information that you wish to give to your employee. For example, union dues and uniform payments may be reported in box 14.

  

  On Copy A (Form W-2), do not enter more than four items in box 12. If more than four items need to be reported in box 12, use a separate Form W-2 to report the additional items (but enter no more than four items on each Copy A (Form W-2)). On all other copies of Form W-2 (Copies B, C, etc.), you may enter more than four items in box 12. See also Multiple forms on page 7.

  Use the IRS code designated below for the item that you are entering, followed by the dollar amount for that item. Even if only one item is entered, you must use the IRS code designated for that item. Enter the code using a capital letter. Leave at least one space blank after the code, and enter the dollar amount on the same line. Use decimal points but not dollar signs or commas. For example, if you are reporting $5,300.00 in elective deferrals to a section 401(k) plan, the entry would be D 5300.00 (not A 5300.00 even though it is the first or only entry in this box). Report the IRS code to the left of the vertical line in boxes 12a-d and money amount to the right of the vertical line.

  See the Form W-2 Reference Guide for Box 12 Codes on page 12. See also the detailed instructions below for each code.

Code V—Income from the exercise of nonstatutory stock option(s).    Show the spread (i.e., fair market value of stock over the exercise price of option(s) granted to your employee with respect to that stock) from your employee's (or former employee's) exercise of nonstatutory stock option(s). Include this amount in boxes 1, 3 (up to the social security wage base), and 5.

  This reporting requirement does not apply to the exercise of a statutory stock option, or the sale or disposition of stock acquired pursuant to the exercise of a statutory stock option. For more information concerning stock options, see Pub. 15-B.

Code W—Employer contributions to a Health Savings Account.    Show any employer contributions to a Health Savings Account. See Health Savings Account on page 5.

Box 13—Checkboxes.   Check all boxes that apply.

Box 14—Other.   The lease value of a vehicle provided to your employee and reported in box 1 must be reported here or on a separate statement to your employee. You may also use this box for any other information that you want to give to your employee. Please label each item. Examples include state disability insurance taxes withheld, union dues, uniform payments, health insurance premiums deducted, nontaxable income, educational assistance payments, or a member of the clergy's parsonage allowance and utilities. In addition, you may enter the following contributions to a pension plan: (a) nonelective employer contributions made on behalf of an employee, (b) voluntary after-tax contributions that are deducted from an employee's pay, (c) required employee contributions, and (d) employer matching contributions.

  If you are reporting prior year contributions under USERRA (see the TIP above Code D on page 9 and USERRA makeup amounts to a pension plan on page 6), you may report in box 14 makeup amounts for nonelective employer contributions, voluntary after-tax contributions, required employee contributions, and employer matching contributions. Report such amounts separately for each year.

  Railroad employers, see Railroad employers on page 5.

Boxes 15 through 20—State and local income tax information.    Use these boxes to report state and local income tax information. Enter the two-letter abbreviation for the name of the state. The employer's state I.D. numbers are assigned by the individual states. The state and local information boxes can be used to report wages and taxes for two states and two localities. Keep each state's and locality's information separated by the broken line. If you need to report information for more than two states or localities, prepare a second Form W-2. See Multiple forms on page 7. Contact your state or locality for specific reporting information.