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The difference between IRS forms W-2 and W-4 lies in who fills out the documents. When starting a new job, employees complete Form W-4 to determine how much tax employers should withhold from their paychecks. At the end of each year, employers file Form W-2 to indicate the amount that was withheld. Both the IRS and employees would need a copy of Form W-2 at year’s end to see the total amount withheld and if employees can expect a tax refund.
In this article, we’ll further compare Forms W-2 vs W-4 and go over how to fill them out.
W-2 vs W-4: A quick overview of the basics
Here’s a look at the key elements of Forms W-2 and W-4 to help you avoid confusion.
Who fills out the form?
Form W-4: All employees on your payroll need to complete a W-4 within their first month on the job. You can find Form W-4 here.
Form W-2: Employers must submit a W-2 for each employee to the IRS at the end of every year. Employers must also provide employees with a copy of their W-2 by Jan. 31. Even if you did not collect any income, Social Security or Medicare tax from employees, you would still need to submit a W-2 for each employee you paid $600 or more. You can find Form W-2 here.
What’s the purpose?
Form W-4: The form indicates how much should be withheld from each employee’s paycheck and submitted to the IRS. The amount would depend on factors such as the employee’s marital status, number of dependents and personal withholding preference.
Form W-2: This year-end form reports an individual employee’s earnings, including gross pay, tips and bonuses, as well as their federal tax contributions, encompassing Social Security and Medicare taxes. Any additional withholdings, such as contributions to retirement plans, would also appear on the W-2.
When is it submitted?
Form W-4: Typically, employees need to submit Form W-4 once when they begin a new job. However, they would need to fill out the form again any time their personal financial situation changes and they need more or less withheld from each paycheck.
Form W-2: As mentioned earlier, employers need to file Form W-2 each year. Employers would need to submit a copy to their employees and the IRS by Jan. 31 to report withholdings for the previous year.
W-2 vs W-4: How to fill out the forms
Although business owners are responsible for W-2 forms, you may need to help employees fill out their W-4 forms. Here are instructions for completing both forms.
Instructions for Form W-4
IRS Form W-4, titled Employee’s Withholding Allowance Certificate, calls for an employee’s personal information, such as their home address and Social Security number. Employees must also specify if they are single, married or married but separately filing taxes.
Employees need to indicate how many allowances they will claim. The more allowances claimed, the lower their tax withholding would be. Allowances could be claimed for things like taking itemized personal deductions, having a qualifying child or dependent or having more than one job.
Employees would disclose the total number of allowances they’re claiming on their W-4, as well as any additional amount they would like withheld from each check.
Employees may want to increase their withholdings if they have more than one job at a time, if their spouse also has a job or if they earn income from sources that are not subject to withholding. Without making an adjustment, employees could owe additional taxes or interest and penalties when filing their annual tax return.
Employees could consider decreasing their withholding if they are eligible for income tax credits, such as a credit for children or other dependents, or deductions.
In many cases, employees must pay state taxes in addition to federal taxes, and would need to submit state-specific withholding forms as well.
Instructions for form W2
Employers must file Form W-2, the IRS Wage and Tax Statement, for each employee who receives at least $600 in wages from your business, even if you did not withhold any income, Medicare or Social Security tax, though you 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.
The form calls for the employee’s Social Security number and the business’ employer identification number (EIN). Additionally, you would need to provide the employee’s and the business’ address. The form also requires you to disclose the employee’s total compensation for the year, including wages and tips, and the amount of federal income tax, Social Security tax and Medicare tax that you withheld.
Employees need their W-2 forms to file their annual tax return. When preparing their federal tax return, the withholding amount that you reported as their employer would be subtracted from their tax bill. The reported withholding amount would determine whether the employee can expect a refund or would need to make an additional payment.
You would also need to provide a W-2 to your state government disclosing how much state income tax you withheld from each employee, in addition to how much they earned.
Steps for filing a W-2 or W-4
You could outsource your payroll and tax obligations to a third-party payroll service provider. Many services can handle withholding, reporting and paying Social Security, Medicare and income taxes and ensure you meet all filing deadlines.
For instance, payroll service provider Gusto automatically calculates and pays all federal, state and local taxes on behalf of business owners. Gusto also issues W-2s and other tax forms and sends them to your employees.
During the onboarding process for new employees, your payroll processing service could collect W-4 forms along with other personal information to keep on file, such as contact information and bank account details for direct deposits.
The IRS encourages employers to file forms digitally to save time. You could expect to get an email confirmation within 24 hours of filing. It may also be more secure than sending paper forms in the mail. Although employers can file paper W-2 forms through the mail, tax deposits would need to be made separately.
If you outsource your payroll responsibilities, keep in mind that you are still ultimately on the hook. You may be subject to penalties or interest if your payroll service fails to make payments or deposits to the IRS.
Digital deposits must be made through the Electronic Federal Tax Payment System (EFTPS). You may want to make sure your payroll service provider uses EFTPS. You could also register to use the system to submit deposits yourself or make additional tax payments.
- What’s the difference between Forms W-2 and 1099? Form W-2 reports compensation and federal tax withholding for full-time employees, while Form 1099-MISC reports payments made to independent contract workers. Employers do not withhold any taxes from contractors’ paychecks, as contractors would need to pay the correct tax amount on their own.
- How do I get my W-2? Employers must mail you a copy of your W-2 before Jan. 31 each year. The best way to obtain a copy of your form is through your employer, though you may be able to request a copy from the IRS for a fee.
- How many allowances should I claim on my W-4? The more allowances you claim, the lower the amount withheld from each paycheck would be, so you should increase your withholding if you’re worried about owing money when filing your tax return.