Form W-4 vs. Form W-2


Emptech's founder, Jeff Aleixo


Jeffrey Aleixo

Form W-4 Form W-2 Tax Compliance

Given all the different obligations employers have, it can be difficult to remember the differences between the various IRS tax forms, especially when they have similar names, like Form W-4 and Form W-2.

Although both federally required IRS tax forms, they are completely different. Form W-4 informs employers of the appropriate tax withholding amount that has to be taken from an employee’s paycheck. On the other hand, Form W-2 is a year-end tax document that is used to report an employee’s annual income and taxes.

Form W-4 and Form W-2

In order to understand the differences between Form W-4 and W-2, it is important to know their basics. Both forms are IRS tax forms that can be found online and need to be filled out for every employee.

Form W-4 

Form W-4 is also known as the employee’s withholding allowance certificate and it provides information about the federal income tax that employers withhold from employees’ pay. Each employee should correctly complete form W-4 on their first day of employment or before their first paycheck. They also need to update it annually if their personal or financial situation changes. Once employees complete the form, employers use the information provided to withhold the correct federal tax amount each time they run payroll and pay their employees.

If an employee fails to complete Form W-4 before their first payroll, the company should process payroll as if the employee had chosen single with zero allowances. They can also use the employee’s W-4 from the previous year. Once completed, employers keep a copy of the signed Form W-4 in case the IRS requests a copy.

Form W-2 

On the other hand, the IRS refers to Form W-2 as a wage and tax statement. The W-2 form is filed annually by employers for each of their employees. This form indicates the employee’s gross earnings, as well as their deductions for income, social security or Medicare taxes, childcare, and retirement savings. Employees use their W-2 forms to file their annual tax returns. It can be filed electronically or completed manually and mailed to the Social Security Administration (SSA). 

State and federal tax laws change frequently, causing small businesses to pay costly penalties for non-compliance. Use this detailed guide to help you remain compliant and find all the information about payroll taxes.

Differences between Form W-4 and Form W-2

The main difference between the two tax forms is that an employee uses Form W-4 to inform employers on how much tax to withhold from their earned income. On the other side, Form W-2 reports year-end earnings and deductions. Form W-2 is provided by the employer to the employee, summarizing gross pay for the year.

Another difference between forms W-4 and W-2 is who completes the form. Employees fill out Form W-4 by providing their personal information and withholding allowances. Employers need to fill out part of the Form W-4 only if they are using the document to fulfill state new hire reporting requirements. When it comes to Form W-2, employers are responsible for its completion. Based on payroll data from the year, they complete Form W-2 for each of their employees.

Since Form W-4 determines the amount of tax deductions withheld from employees’ paychecks, they should complete it before their first payday. However, form W-2 is an annual form that reflects data from the previous year. Therefore, employers need to file this form for every employee, every year, no later than January 31st.

The final important difference between Form W-4 and W-2 is what employers do with them. Once employees fill out their W-4, employers should file it, but they do not need to submit it to the IRS or SSA. Conversely, employers have to submit all W-2 forms to the SSA, either by mail or filing electronically. In addition to this, employers have to distribute completed forms W-2 to every employee each year, no later than January 31.

Form W-4 Allowance

Form W-4 is used to calculate how many allowances an employee can claim. In this case, an allowance is a number clarifying what tax rate should be applied. The more allowances employees claim the fewer employers withhold from their paychecks. The amount of federal tax withheld is based on the number of allowances claimed on the W-4 and depends on an employee’s situation. In general, the higher the number, the less tax is withheld.

State-Specific Form W-4

Several states, such as Colorado, Minnesota, and Mississippi, use Form W-4 to determine state tax withholdings. However, some states, like Texas, Tennessee, South Dakota, and Florida, have no state tax withholding requirements. Most other states have their own state tax withholding form similar to a W-4.

Managing Form W-4 and Form W-2

Form W-4 and Form W-2 are in some ways related but in other ways completely different. Both forms are IRS tax documents, but Form W-4 is used to gather employee information, while Form W-2 is provided at year-end so that employees can file their taxes.

Both of these forms have time frames that must be adhered to, so it is of the utmost importance that employers meet the necessary requirements. The easiest and most accurate way to handle Form W-4 and W-2 is to streamline tax form processes. Errors made on either of them can hurt employers and employees. Therefore, it is important to make sure that both forms are completed correctly and within the appropriate time frame as dictated by the IRS. Outsourcing tax management helps companies ensure tax compliance, optimize form processing, and stay in accordance with all tax form requirements.

Outsource payroll taxes to ensure easy reporting to state agencies, secure document storage, and compliance with regulatory deadlines.
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