The W-2 and W-4 are frequently used tax forms in the workplace. However, it can be confusing for employers to determine who fills out which form and when it should be done. In this comprehensive guide, we’ll discuss everything you need to know about the W-2 and W-4 tax forms.
We’ll highlight the differences between the two and walk you through how each should be completed to help your company avoid making costly legal mistakes.
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 includes:
The W-4 form — also known as 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 payroll.
Details captured on the W-4 form include:
In addition to the federal W-4 form, employees may need to complete state W-4 forms depending on 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 employees to complete a separate W-4 form:
If your business operates outside the states mentioned above, your employees must complete federal and state W-4 forms.
The table below highlights some of the key differences between the W-2 and W-4 forms.
Employers must fill out a W-2 form for every employee in their workforce. 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.
Completed W-2 forms must then be submitted to the Social Security Administration (SSA) for filing. Employers are required to print and distribute copies of completed W-2 forms to employees by January 31st.
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).
Employers are required to submit W-2 forms to the SSA by January 31st.
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.
The penalties associated with making mistakes on federal tax forms can be costly.
The most common mistakes made on W-2 and W-4 forms include:
One of the most common mistakes employees make when filing out tax forms is classifying employees incorrectly.
A worker’s classification determines which IRS form you should complete.
Company employees receive a W-2 form
Freelancers and independent contractors receive a 1099-MISC form
To determine whether a worker should be classified as an independent contractor, refer to the IRS common law rules. If you can answer yes to the following questions, your workers should be classified as a company employee.
If you can’t decide whether a worker is an employee or independent contractor, file Form SS-8 with the IRS.
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 challenging. Wage determination is a critical step in accurately completing the details of Box 1 on the W-2 form.
For accurate annual wage calculations, consider using a time tracking app to streamline your compensation process.
Section 6721 of the Internal Revenue Code imposes a penalty for recording an incorrect social security number or employee name on tax forms. Companies will also encounter penalties if personal information is left off of tax filing forms.
To avoid costly errors, carefully review the spelling, wage figures, and personal information recorded on each form before submitting it.
If you submit a W-2 past the deadline without giving a reasonable cause, your company will be subject to a penalty. The penalty is $60 per W-2 form for each taxpayer,which can be pretty significant if you have a large workforce. The maximum penalty a business can pay per year is $664,500.
To avoid submitting forms past the deadline, begin collecting necessary documentation and start tax preparations ahead of schedule. This will give you ample time to spot and correct discrepancies and submit the forms to avoid penalties.
Filling out the W-2 is pretty straightforward. Whether you fill out the form manually or electronically, the process is pretty much the same. The W-2 form contains boxes A-F and numerical boxes from 1 to 20.
Follow the steps below to complete the W-2 form:
Your employees can follow the steps below to complete the W-4 form. The IRS website and forms offer general instructions for each step, including when to use the estimator on the IRS website.
According to the IRS, 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 do not need to update their W-4 forms unless they need to amend details under the following conditions:
Note: 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.
If an employee fills out their W-4 form incorrectly, there can be significant financial consequences. An incorrectly filled-out W-4 can result in overwithholding or underwithholding of federal income tax.
Overwithholding occurs when too much tax is withheld from the employee's paycheck. This can lead to a larger tax refund at the end of the year but also reduces the employee's take-home pay throughout the year.
Underwithholding happens when not enough tax is withheld. This can result in a tax bill at the end of the year, along with potential penalties and interest charges from the IRS.
No. The employer primarily uses the W-4 form to determine the correct amount of federal income tax to withhold from an employee's paycheck. It's an internal document that stays with the employer.
If an employer fails to provide employees with a W-2 form by the January 31st deadline, the employee can encounter significant legal repercussions.
Below are three of the most commonly reported consequences.
The penalty for failing to submit W-2 forms on time varies depending on the severity and duration of the delay. Here's a breakdown of the potential penalties for the 2024 and 2025 tax years as provided by the IRS:
The IRS charges interest on penalties depending on the type of penalty and its amount. Until you settle your remaining balance in full, the IRS will keep adding interest to your account.
To correct mistakes on a previously submitted W-2 form, employers must file a Form W-2c.
This form, along with a separate Form W-3c, must be submitted once for each year that needs a correction made. It's important to note that a Form W-3c is necessary, even if the correction only involves an employee's name or social security number.
The W-4 form plays a crucial role in payroll processing by providing essential information to employers about an employee's tax withholding preferences. This information helps employers calculate the correct amount of federal income tax to withhold from each employee's paycheck.
Here's how the W-4 impacts payroll processing:
We understand that payroll taxes can be overwhelming. Knowing which tax forms to fill out and when to submit them is only half of the process.
Calculating accurate wages and deductions is a necessary part of following tax law. To automate this process and reduce the chance of making costly mistakes, use a time tracking app like Timeero to avoid payroll errors.
Emily Maina is a tech-savvy writer with a passion for creating content. With years of experience in the industry, she is well-versed in the latest trends and developments in the tech industry. When she’s not working, Emily enjoys exploring the great outdoors or watching her favorite shows.
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