IRS forms W-2 and W-4 both have to do with employers and their employees. However, the difference between W-2 and W-4 forms lies in how they function and who should fill out and complete the documents.
This article explains the W-4 form vs W-2, distinguishing one from another. It covers their differences in terms of purpose, who completes them, when they are submitted or filed, and how to fill them out.
Tax form W-2 records all earned wages by an employee, as well as taxes withheld by the employer from their paychecks throughout the year. Meanwhile, tax form W-4 tells the employer how much to withhold from each employee's paycheck.
You can find both electronic copies of the W-2 and W-4 at IRS.gov.
W-2 vs W-4: Basic Overview
Here are some answers to questions about the basic differences between W-2 and W-4 forms.
What is the Purpose of Each Form?
Form W-2: Wage and Tax Statement
Also known as the Wage and Tax Statement form, this year-end form reports an employee's gross earnings, as well as their bonuses and tips, deductions for income, Medicare, and Social Security taxes. Form W-2 includes any additional withholdings, including certain childcare account and retirement plan contributions and other withheld taxes from the employee's paychecks throughout a tax year.
Meanwhile, employers use the W-2 tax form to report FICA taxes to the Social Security Administration (SSA) by the end of February. The SSA uses the tax information provided on the forms to determine the Social Security benefits entitled to each employee.
The IRS also uses the wage and tax statement form to monitor an employee’s tax liability, making it a valid proof of income for different applications such as federal financial aid for college, SSN Benefits, and court proceedings.
Visit our website, Real Check Stubs, and read W-2 Wage and Tax Statement Form for Small Business for an in-depth look into what a W-2 form is.
Form W-4: Employee's Withholding Certificate
The Employee's Withholding Allowance Certificate, more commonly known as Form W-4, indicates how much income tax an employer should withhold from an employee's paycheck and submit to the IRS.
All employees must fill out a W-4 as part of their new-hire document on the first day of their employment or before their first paycheck. They should also update the form in case their personal or financial situation changes.
Employers use W-4 to calculate the correct amount of federal tax to withhold from each employee on their payroll. The withheld amount depends on various factors, including the number of dependents, the employee's marital status, and personal withholding preference.
Who Fills Out and Completes the Form?
Who Fills Form W-2?
For each employee, an employer must fill out and submit a W-2 to the Internal Revenue Services at the end of every year. Even if the employer did not collect any income, Medicare, or Social Security from their employees, The IRS still requires employers to submit a W-2 for each employee paid $600 or more.
Who Fills Form W-4?
All employees on a company's payroll must complete a W-4 form within the first month of their job. They should provide their personal information and withholding allowances on the W-4 form. Meanwhile, employers also fill out part of the form if they use the document to fulfill state new-hire reporting requirements.
When Is It Submitted?
When is Form W-2 submitted?
As said earlier, employers need to complete and file form W-2 at the end of each year. Employees should also receive a copy of the W-2 by the 31st of January from their employers to report their withholdings for the previous tax year.
When is Form W-4 submitted?
Generally, employees need to submit Form W-4 once at the beginning of their new job or at least before their first paycheck. However, employees would need to fill out a new form any time their personal or financial situation or information changes, and they need more or less withheld from each paycheck.
W-2 vs W-4: How to Fill out Forms
Although the IRS requires employers and business owners to complete and submit W-2 forms, some assistance might still be needed to fill out W-4 forms. Here are instructions for how to complete both forms.
Form W-2 Instructions
For every employee who receives at least $600 in wages from a business, employers must complete and file the Wage and Tax Statement, Form W-2, to the IRS. Although, the employer would have had to withhold income tax if an employee did not claim an exemption from withholding on their W-4, or they only claimed one allowance. This is still the case even if the employer did not withhold any income, Social Security, or Medicare Tax.
W-2 requires the business' employer identification number (EIN) and the employee's Social Security number, as well as their addresses. Additionally, the form also requires employers to disclose their employee's total compensation amount for the year. This includes:
- federal income tax,
- withheld Medicare and
- Social Security tax amounts.
Employers must also send a copy of the W-2 form to their employees so that they can file their annual tax returns. When preparing a federal tax return, the employee subtracts the reported withheld amount by the employer from their tax bill. The declared withholding amount determines whether the employee would expect to make an additional payment or a refund.
Additionally, employers would need to provide a copy of the W-2 form to their state government disclosing how much state income tax employers withheld from every employee. This is in addition to how much employers earn.
What a W-2 contains depends on the business and the employees. For example, retirement plans and dependent care benefits may not apply to every employee, which means they may not apply to each W-2 an employer completes. As said earlier, the IRS provides detailed instructions on how to fill out each box within the W-2 form correctly.
After completing W-2 forms for businesses, employers need to file them with the Social Security Administration and distribute them to their employees. Employers should also file and provide W-2s for every employee that worked during that tax year, even if they do not work for the business anymore.
W-2s are only for employees and not for contractors. Meanwhile, for 1099 contractors, employers should file the 1099-NEC form, formerly known as the 1099-MISC, until the tax year 2023. Like W-2 forms, the 1099 NEC and MISC form reports how much an employer compensated the contractor and how much tax they withheld for that contractor. Employers need to file the forms before the end of January and distribute them to the independent contractors that executed their job during the tax year.
If you lost your W-2 form read “How Can I Get a Copy of My W-2 If I Lost It”?
Form W-4 Instructions
Ideally, employees fill out the IRS form W-4 on the first day of their employment or at least before their first paycheck. W-4 tells employers how much tax to withhold from each employee's paycheck when running payroll. The IRS website provides employers blank W-4 forms.
The Employee's Withholding Allowance Certificate requires employees to provide their personal information, including:
- Social Security number,
- home address,
- and marital status, including single, married, or married but separately filing taxes.
Employers cannot tell their employees what to put on their W-4 forms. However, they could offer resources to assist them in finding out their correct withholding. Once the employees complete their W-4, they should return it to their employers, who then input the information into their payroll system. This ensures the correct amount of tax is withheld from each paycheck.
Form W-4 calls for employees to specify how many allowances they would claim, as more allowances mean lower tax withholding. Some items that employees could claim as allowances include things such as itemized personal deductions, having more than one job, or having a qualifying dependent such as a child.
Employees need to report the total number of allowances they claim on their W-4 and any additional amount they would want to withhold from each paycheck. Employees might also like to increase their withholdings if they happen to have two or more jobs at a time, if they earn income from sources not subject to withholding, or if their spouse also has a job.
Employees could change their W-4s anytime, which means employers should update accordingly and adjust the payroll data. Without correctly reporting their allowances or making an adjustment, employees could owe additional taxes or interest and even penalties when filing their annual tax returns.
Moreover, employees could decrease the withholding amount if they qualify for income tax credits, such as credit for children or other dependents or deductions. In most cases, employees should pay state taxes on top of federal taxes, as well as submit specific withholding forms depending on their state.
5 Tips for Filing IRS Forms W-2 and W-4 for Small Businesses
Follow these tips to help you create a more simplified W-2 and W-4 filing, ensuring that you meet the requirements for both forms.
1. Do not wait until the last minute
Complete the forms as soon as you can to avoid missed deadlines and errors caused by delays. Missed W-2 deadlines could trigger a late penalty from the IRS. Have your employees fill out their W-4s on or before the first day of their employment and enter the essential details into your payroll system as quickly as you can. Start working on your W-2 forms at the start of January to meet the deadline before the end of the month.
2. Consult or hire a professional
The IRS website provides detailed instructions for both W-2 and W-4 forms. However, they could still cause confusion. Consider consulting or even hiring a professional such as a business accountant or tax advisor with in-depth experience with IRS tax forms. They can answer your questions and help you complete filing them out. Additionally, they could even assist you in creating a streamlined process of filing.
3. Use electronic filing, if you can
When it comes to Form W-2s, the IRS recommends that you file them electronically for a faster and easier process. It also saves you from printing on paper, reducing waste. If possible, have your employees fill out their W-4s electronically for easier and more organized recording and storing. You would also have quick access to them if needed.
4. Take advantage of software
One of the easiest ways of streamlining your W-2 and W-4 processes is by using payroll or HR software capable of handling and filing tax forms. Depending on the system you choose, you could fill out forms, file forms on the platform, record, and access them later for review.
5. Take caution
As with all tasks related to your business, remember to take extra caution when filling out W-2s and assist your employees in completing their W-4 forms. Delays or errors on filing and submission could potentially affect your business negatively, as well as your employees. So, spend extra time and care now to save you from troubles and save you money in the long run.
After reading the article W-2, you should know by now the difference between W-2 and W-4. Remember, the W-2 records and reports how much wage an employee earns and the tax withheld from their paycheck throughout a tax year. Meanwhile, employers use tax form W-4 to determine how much money to withhold from each employee's paycheck. To simplify further, W-2 is the record, and W-4 is the plan.
Visit our website, Real Check Stubs, and check out our professional check stub builder to help you create a streamline your payroll and other must-read articles.