Do You Have to File a W-2 for Payments Under $500?

Whether a Form W-2 is required for payments under $500 depends on the worker’s relationship with the business and if taxes were withheld. Following the specific rules set by the Internal Revenue Service (IRS) is necessary for proper tax compliance.

W-2 Filing Requirements Under the Threshold

The obligation to file a Form W-2, Wage and Tax Statement, is determined by whether taxes were withheld, not the payment amount. If an employer withholds any federal income, Social Security, or Medicare tax from a worker’s pay, a W-2 must be filed with the Social Security Administration and provided to the employee. This is required regardless of the total wages paid, meaning a W-2 is mandatory even if an employee earned less than $500.

A specific dollar threshold only applies when no taxes have been withheld. In that scenario, an employer must file a W-2 for an employee who receives $600 or more in wages for the year. Therefore, if you paid an employee $500 and did not withhold any taxes, a W-2 is not required.

The deadline for furnishing W-2s to employees and filing them with the Social Security Administration is January 31 of the year following the payment. This filing must be accompanied by Form W-3, Transmittal of Wage and Tax Statements, which summarizes the data for all employees.

Determining Worker Status

A W-2 is only required if the worker is classified as an employee. The IRS evaluates the degree of control and independence in the relationship using three main categories to determine worker status.

Behavioral Control examines whether the business has the right to direct and control how the worker does their job, such as by providing detailed instructions or requiring specific training.

Financial Control looks at who directs the business aspects of the worker’s job, including how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies.

The Relationship of the Parties considers the arrangement’s perception through written contracts, employee-type benefits like insurance or paid vacation, and the relationship’s permanency.

If a business is uncertain about a worker’s status, it can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, for an official IRS ruling.

Penalties for Non-Filing

Failing to file a required Form W-2 or provide it to an employee by the January 31 deadline can result in financial penalties from the IRS. The penalty amount is assessed per form and increases based on how late the filing occurs. For a failure corrected within 30 days of the due date, the penalty is $60 per form.

If the IRS determines that a business intentionally disregarded its requirement to file, the penalty is at least $660 per form with no maximum limit.