W-2 vs W-4 Forms: The Differences And Everything You Should Know
Samson Kiarie
Last update on:
April 18, 2024 2:39 AM
Published on:
The W-2 and W-4 are frequently used tax forms in the workplace. However, it can be confusing for employees and employers to determine who fills out which form and when they should be done. In this comprehensive W-2 vs W-4 guide, we’ll discuss everything you need to know about these tax forms.
We’ll highlight the difference between the W-2 and W-4 forms, and show you how to complete each form in a step-by-step guide. We’ll help you accurately complete the forms in time to avoid costly mistakes. Remember that failing to submit the forms in time or inputting the wrong details can result in steep fines from government agencies.
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If you’re short on time, the following table summarizes the key differences between the forms:
Although this table gives you a rough idea of how the two forms differ, in the following sections, we’ll take a more in-depth look at the details of the W-2 and W-4 forms, including who completes each form, when the form is due, and where the forms are submitted.
What Is a W-2 Form?
The W-2 form — also known as Wage and Tax Statement — is a tax document containing a summary of the worker’s total income and tax withholding for the past year. Some of the information captured in the W-2 form include:
Employee and employer personal details
Employee’s wage, tips, and other compensation
Social Security wages and tax withheld
Medicare taxes, wages, and tips
Dependent care benefits and more
Who Files a W-2 Form?
The employer fills out the IRS form W-2 and submits it to the Social Security Administration (SSA) on behalf of salaried employees in their workforce. The form applies to all salaried employees, except independent contractors.
According to the IRS, if you’re engaged in any business or trade and pay an employee $600 or more, including non-cash payments, you must submit a W-2 for that employee, even if they are related to you.
Once you submit the W-2 forms to the SSA, you must print out copies and distribute them to respective employees for tax filing. You must furnish each employee with the completed W-2 form before January 31st to give them enough time to determine the amount of tax owed and file tax return.
Do Independent Contractors Need a W-2 Form?
No, independent contractors and freelancers don’t need a W-2 form. Instead, businesses outsourcing services to independent contractors should complete the 1099 form for each worker. The 1099 form is a requirement if the total amount paid to an independent contractor in a year is $600 or more.
When Are W-2 Forms Due?
According to SSA, W-2 forms for the previous year are due on January 31st. For example, W-2 forms for the 2022 tax year would be due on January 31st, 2023.
However, if the deadline falls on a weekend (Saturday or Sunday) or a legal holiday, you can submit the forms on the next business day. The SSA allows employers to submit paper W-2 forms or electronic forms through the Business Services Online (BSO) on the SSA website.
How to Fill Out a W-2 Form
Employers must complete the W-2 form by January 31st and submit it to the SSA.
Filling out the W-2 is straightforward, provided you have the correct details. You can fill out the form manually or electronically, but the process is pretty much the same. The form contains boxes A-F and numerical boxes from 1 to 20. Here’s how you complete it:
Enter the employee’s social security number in Box A.
In Boxes B and C, input your (employer’s) corresponding details: social security number (SSN), Employer Identification Number (EIN), name, address, and ZIP code.
Section D requires you to add the control number. This is an optional box designated for the numbering of the whole transmittal.
Add the corresponding employee’s details in sections E and F: Name, address, and ZIP code.
Fill out boxes 1 to 11 with the employee details: Taxable income, social security tax and wages, Medicare wages, tips, federal income tax, dependent care benefits, and non-qualified plans. Leave section 9 empty.
Select the relevant W-2 box 12 codes for each employee and input their corresponding amounts in sections 12 (a), 12(b), 12(c) and 12(d). Check out the Box 12 codes in this guide.
In box 13, check all the applicable boxes: statutory employee, retirement plan, or third-party sick pay. Enter miscellaneous payments in box 14.
In box 15, input your corresponding state abbreviation and the state ID number.
Lastly, complete boxes 16-20 with the relevant details: locality name, and state and local tax, wage, income, and tips.
What Is a W-4 Form?
The W-4 form — the Employee’s Withholding Allowance Certificate — tells the employer and the payroll department how much tax should be withheld from the employee's paycheck each time they run a payroll.
Some of the details form W-4 captures include:
Employee personal information (name, address, location. marital status, and social security number)
Dependents and other tax credits
Multiple job and spouse employment status
Rate at which to withhold taxes from the employee's pay (single or married rate - with the latter paying less tax)
Number of allowances an employee claims (each one reduces the amount withheld)
Employees can inform the employer that they want an extra amount withheld (for example, in the case of an aggressive retirement savings plan)
Employees can claim to be exempt from withholding
Federal vs State-Specific W-4 Form
In addition to the federal W-4 form, employees may need to complete state W-4 forms depending on the states where their employers operate. State-specific W-4s serve the same purpose as their federal counterparts. The only difference is that they’re used to determine employees' state tax liability.
There are three categories of states that don’t require a separate W-4 form:
States without state income tax: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Wyoming, and Washington)
State with flat rate income tax: Pennsylvania
States that use federal W-4 to compute state income taxes: Utah, North Dakota, and New Mexico)
If your business operates outside the states mentioned above, your employees must complete federal and state W-4 forms.
Who Files a W-4 Form?
Employees must complete the W-4 form as part of their new hire paperwork. The new employee completes the form electronically or manually and submits it to their employer. Unlike the W-2 form, no regulation requires employees to submit the form to the SSA or the Internal Revenue Service (IRS).
When Are W-4 Forms Due?
According to the IRS requirements, employees should complete form W-4 as part of their onboarding paperwork on the first day of employment or, at the very latest, before the end of the first pay period.
Employees don’t need to submit new documents yearly or periodically unless they need to amend details under certain conditions which include:
Change in filing status, such as marital status
Have a baby
Get a new job (second or third job)
Although employees don't have to submit new forms, the IRS recommends revisiting W-4s each year to ensure the information provided is still accurate.
How Long Does an Employer Need to Keep W-4 Forms?
According to the IRS employee tax recordkeeping requirements, employers should keep employee tax records for at least four years after the date the taxes were due or paid (whichever is later). This applies to your current and former employees.
The records that should be saved include:
Copies of W-2 and W-4 forms.
Personal employee information
Date of employment for each employee
Wages, annuity, and pension payments
The only exception to this standard pertains to details of qualified sick and family leave taken after March 31, 2021, which should be kept for at least six years. Learn more about proper recordkeeping in our guide about how long businesses should keep records.
How to Fill Out a W-4 Form
New employees should complete form W-4 form on the first day of employment.
To complete the W-4 form, follow the steps below. The IRS website and forms offer general instructions for each step, including when to use the estimator on the IRS website.
Enter your personal information in the part labeled step 1: name, address location, social security number, and marital status.
Step 2 – multiple jobs or spouse works – is for employees with multiple jobs or those looking to file jointly with their spouses. Check the box in option 2(c) if you have only two jobs. Alternatively, skip to step 2(b) on page 3 (2024 form) and fill out the relevant information.
Use the provided instructions in Step 3 – claim dependent and other credits – to compute child and dependent care credit. This section applies only to married employees with children under 17 or spouses and parents unable to care for themselves. The credits increase your paycheck and reduce the refund you may receive depending on your tax liability.
Step 4 – other adjustments – declare other income, such as dividends, interests, or retirement income. Disclose deductions you expect other than the standard deduction and additional tax your employer should withhold. Use the deduction worksheet in step 4(b) on page 3 (2024 form) to accurately compute deductions.
Step 5 – Signatures – Once you have filled out the details, sign the form and submit it to your employer. The employer will append a signature to complete the form.
Common W-2 and W-4 Mistakes and How to Avoid Them
Federal and state agencies expect nothing but accurate information when filing W-2 and W-4 forms. Omitting personal information or submitting erroneous information can be costly, so you should be meticulous when filling out these forms.
Here are some of the most common mistakes made by small business owners and employees on make the W-2 and W-4 forms and how to avoid them:
Inaccurate Employee Classification
A common mistake businesses make is classifying employees incorrectly. Remember that the worker’s classification determines the IRS form you should complete. For example, common-law employees complete form W-2, whereas freelancers and independent contractors complete Form 1099.
Check out the IRS common law rules to determine whether a worker is an independent contractor or employee. Essentially, three categories of evidence separate employees from independent contractors, namely:
Behavioral – Does you company control or have the right to control what employees do or how they do their job?
Financial – Does the payer control how a worker is paid, reimbursed or provided with tools/supplies?
Type of relationship – Do you have written contracts or outlined employee type benefits?
If you can’t decide whether a worker is an employee or independent contractor, file Form SS-8 with the IRS.
Inaccurate Wage and Compensation Determination
Wage determination is a critical step in accurately completing the details of Box 1 in the W-2 form. While it’s easy to determine the annual wage of salaried employees, computing the gross income of hourly employees for a calendar year can be daunting.
Suppose you have a construction, plumbing, or painting crew tackling different tasks at different rates. How do you ensure that each crew member’s annual wage is accurate? Staying on top of hourly or per diem employees’ earnings requires a reliable employee attendance solution such as Timeero.
Timeero’s time tracker simplifies the wage determination process.
Timeero — the best GPS tracking app – records employee time accurately and multiplies their work hours with the respective task’s rate to calculate their total earnings. It takes into account employee over and double time for fair compensation. When tax season rolls around, you can generate employee compensation reports to get their gross pay for the year.
In addition, Timeero enables you to track mileage for taxation purposes. Mileage reimbursement is tax-free if the business uses the IRS standard mileage rate or an accountable plan. Timeero tracks mileage and documents the purpose of each trip so that employee reimbursement meets IRS requirements.
For businesses using reimbursement models other than the IRS standards, Timeero computes the excess amount, which should be disclosed on form W-2 for taxation purposes.
In addition to mileage tracking, Timeero offers a segmented tracking feature for businesses who need more insight into field employee activities.
Erroneous or Missing Personal Information
Section 6721 of the Internal Revenue Code imposes a penalty for recording an incorrect or missing social security number or employee name on form W-2.
To avoid costly errors, carefully review each form before submitting it. Check for spelling mistakes, review the figures, and ensure employee names match what is found on their official documents.
Missed Deadlines
If you miss a W-2 deadline and cannot provide a reasonable cause, you’ll be subject to a penalty. The penalty is $60 per W-2 form for each taxpayer— if you have a large workforce, the penalty can be significant. The maximum penalty a business can pay per year is $664,500.
Collect relevant information and begin tax preparations early to prevent rushing at the last minute. This will give you ample time to spot and correct discrepancies and submit the forms to avoid penalties.
Embrace Technology To Avoid W-2 and W-4 Mistakes
Payroll taxes can be overwhelming, especially if you aren't clear about the paperwork requirements. It’s vital to understand what W-2 and W-4 tax forms are for, how to fill them out correctly, and when to submit them.
While some details, mainly personal information, are easy to obtain, others like wages and deductions, may require some calculation. We recommend automating your payroll process, from employee tracking to compensation, to avoid payroll errors that often lead to penalties.
A cloud-based solution like Timeero lets you track vital aspects of the taxation process, like employee annual wage and mileage. At the end of the year, you’ll only need to pull relevant reports to complete the tax process.
Lastly, when in doubt about any aspect of forms W-2 or W-4, always consult a labor attorney or tax professional. Receiving guidance from a legal expert helps avoid costly mistakes that you might overlook on your own.
W-2 vs W-4: FAQs
Which Tax Form Do Independent Contractors Use?
Independent contractors and freelancers use Form 1099, either 1099-NEC or 1099-MISC, to report their employment tax.
What Is the Difference Between the W-4 and W-2 forms?
The main difference between the W-4 and W-2 forms is that the W-2 tells employers how much the employee’s withholding amount is, whereas the W-4 tells the IRS how much an employee earns and how much they will owe the government.
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Samson is a mathematician turned content marketer specializing in SaaS and Tech content. He focuses on the practical aspects of software systems while keeping abreast of the industry’s cutting-edge principles to create informative and engaging content. When he’s not writing, Samson spends time playing or watching soccer.
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