W-2 vs W-4 Forms: The Differences And Everything You Should Know

What is a W-2 form?

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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: 

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• Company name, address, EIN, and state ID number
• Employee’s name, address, and social security number
• Employee’s wage, tips, and other compensation
• Social Security wages and tax withheld
• Medicare taxes, wages, and tips
• Dependent care benefits

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What is a W-4 form?

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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. 

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Details captured on the W-4 form 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

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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. ‍

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There are three categories of states that don’t require employees to complete 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 the federal W-4 to compute state income taxes: Utah, North Dakota, and New Mexico

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If your business operates outside the states mentioned above, your employees must complete federal and state W-4 forms. 

What is the difference between a W-2 and a W-4?

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The table below highlights some of the key differences between the W-2 and W-4 forms.

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Who fills out the W-2 and the W-4?

W-2 form

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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.

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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.

W-4 form

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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-2 forms due?‍

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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. 

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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 avoid making the most common mistakes on W-2 and W-4 forms

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The penalties associated with making mistakes on federal tax forms can be costly.

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The most common mistakes made on W-2 and W-4 forms include: 

• Inaccurate employee classification
• Inaccurate wage and compensation determination
• Erroneous or missing personal information
• Missed deadlines

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Inaccurate employee classification

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One of the most common mistakes employees make when filing out tax forms is classifying employees incorrectly.

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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

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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.

• Behavioral – Does your 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?

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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

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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.‍

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For accurate annual wage calculations, consider using a time tracking app to streamline your compensation process.

Erroneous or missing personal information

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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.

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To avoid costly errors, carefully review the spelling, wage figures, and personal information recorded on each form before submitting it. 

Missed deadlines

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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.

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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.

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How to fill out a W-2 form

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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. 

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Follow the steps below to complete the W-2 form:

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• 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.

How to fill out a W-4 form

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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. 

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• Enter personal information in the part labeled step 1: name, address location, social security number, and marital status. 
• Step 2 – multiple jobs or joint filing – is for employees with multiple jobs or those looking to file jointly with their spouses. The employee should check the box in option 2(c) if they have only two jobs. Alternatively, they can 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 to married employees or single parents with children under 17. The credits increase an employee's paycheck and reduce the refund they may receive depending on their tax liability. 
• Step 4 – other adjustments – declare other income, such as dividends, interests, or retirement income. They should disclose deductions they expect other than the standard deduction and additional tax employer should withhold. They can use the deduction worksheet in step 4(b) on page 3 (2024 form) to accurately compute deductions. 
• Step 5 – Signatures – After filling out the details, they should sign the form and submit it to you, their employer. You should then append a signature to complete the form.

When should employees update their W-4 forms?

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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.

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Employees do not need to update their W-4 forms unless they need to amend details under the following conditions: 

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• Experience a change in marital status or filing status
• Have a baby
• Secure a new job (second or third job)

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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.

What happens if the W-4 is filled out incorrectly?

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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.

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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.

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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.

Do employers need to send W-4 forms to the IRS?

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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.  

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What happens if an employer fails to provide a W-2?

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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.

1. Delayed tax filing: Without a W-2, the employee may not have the necessary information to accurately file their tax return on time. This could lead to penalties and interest charges from the IRS.  
2. Difficulty in claiming refunds: If the employee is expecting a tax refund, they may not be able to claim it without the required W-2 information.
3. Potential audit risks: Incorrectly reported income or taxes could trigger an IRS audit, leading to further complications and potential penalties.

What is the penalty for failing to submit W-2 forms on time?

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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:

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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.

How do employers handle W-2 corrections?

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To correct mistakes on a previously submitted W-2 form, employers must file a Form W-2c.

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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. 

How does the W-4 impact payroll processing?

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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.  

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Here's how the W-4 impacts payroll processing:

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• The information provided on the W-4, such as the employee's filing status, number of allowances, and additional withholding preferences, is used to determine the appropriate tax withholding amount.  
• Payroll software systems are designed to process W-4 information and automatically calculate the correct tax withholdings based on the employee's specific circumstances.  
• Any changes in tax laws or an employee's W-4 form will require adjustments to the payroll system.  
• The information from W-4 forms is also used to generate accurate W-2 forms at the end of the year, which summarize an employee's annual earnings and taxes withheld.

Embrace technology to avoid W-2 and W-4 mistakes

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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.

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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.

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