W-2 vs W-4? What Is The Difference? + Everything Else You Need to Know
Vesna Mihajlovic
Last update on:
July 28, 2023 11:24 AM
Published on:
No matter what side of the business you are on, you'll need to deal with lots of paperwork. W-2 vs W-4 often cause confusion. These are some of the primary tax forms in the US, so whether you're part of the workforce or an employer, you better equip yourself with knowledge on how to fill out the ones that apply to you properly.
We know that with so many IRS forms to complete, it's easy to get overwhelmed and feel lost.
That's why we've gathered all the essential data in one place to explain the core differences between the W-2 and W-4. We'll also provide you with the links to the blank forms and inform you of everything else you need to know regarding these documents.
Let's begin!
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Let's Get to the Point: What's the Difference Between W-2 and W-4?
Both W-2 and W-4 are required IRS documents for any business operating in the US. If we were to simplify things and provide the significant difference between them, we could say that the W-2 vs W-4 difference comes down to who fills out these forms.
W-4 forms are filled out by employees when they start a new job. On the other hand, employers have to complete W-2 forms each year for all employees.
Also, these papers differ in their purpose. For example, the W-4 tax form can be seen as an input paper, while the W-2 form is an output document. The former is like a guide for the employer, as it provides them with the information they need to calculate how much income tax should be withheld from their staff's paychecks.
The date when they need to be submitted is different too, and so are their recipients. The employee W-2 form is intended for the Internal Revenue Service and the employees. It needs to be submitted by January 31st for the prior tax year.
The W-4 is part of the onboarding paperwork, and its final destination is the employer or the HR department. Therefore, it needs to be collected within the first month of a new hire.
What Then?
In Short: Understanding W-2 vs W-4
In an easy-to-digest format, let's summarize all that we've just covered on the difference between w4 and w2.
Now that we've got the basics out of the way, let's see what else businesses and employees need to know about the W-2 and W-4 payroll documents.
What Is a W-4 Used for?
To better understand what this document used for is, let's examine the form W-4 definition first:
W-4 form is the document that tells the employers and the payroll department how much tax should be withheld from their employee's paycheck.
This document is also referred to as the Employee's Withholding Certificate.
As you can see from the form above, employers collect essential data on their new hires via W-4 forms. This data includes information like:
at what rate to withhold the income tax from the employee's pay (single or married rate - with the latter being lower)
the number of allowances an employee claims (each one reduces the amount withheld)
an employee can inform the employer that they want an extra amount withheld (for example, in the case of an aggressive retirement savings plan)
an employee can claim to be exempt from withholding
When starting a new job, it's the employee's responsibility to correctly complete the W-4 tax form and submit it to the employer, the HR department, or the payroll department. This document is then used to add data to the payroll system.
It's also used to complete the W-2 form at the end of each year.
Employers need to file W-4 forms physically or electronically, but no regulations require them to be sent to the IRS or the SSA (Social Security administration).
Federal vs State-Specific W-4 Form
Employers also need to be mindful of the fact that some states use their W-4s, while others stick to the federal W-4 form. The former works similarly to the federal ones.
Essentially, state-specific W-4s serve the same purpose as their federal counterparts: they are used to determine a specific amount that will be withheld from the worker's paycheck and go towards the state taxes.
If your business operates in a state with no state income tax like Washington, Texas, or Florida, the federal W-4 is sufficient.
States With No Income Tax:
Alaska
Florida
Nevada
South Dakota
Tennessee
Texas
Wyoming
When Are W-4 Forms Due?
An employee within their first month must submit the W-4 tax form. This applies to all new employees on your payroll. This document is a part of the onboarding paperwork, so once an employee has accepted your job offer, provide them with a W-4.
Ideally, they should complete it on the first day of their employment or as soon as possible, since it provides the employer with vital data on correct federal tax that needs to be withheld from the employee's earnings.
Are Workers Required to File a W-4 Form Every Year?
The short answer is - no, they aren't. Employees don't have to periodically submit new W-4 documents to their employers unless they have life or work changes that affect the amount they need to be withheld from their paycheck.
If you have more than one job, your marital status has changed, or you had a baby, you may need to complete a new W-4 form.
How Long Does an Employer Need to Keep W-4 Forms?
Employers need to keep W-4 forms for at least four years. According to the IRS rules on the employment tax recordkeeping, "all records of the employment taxes should be kept for at least four years after filing the fourth quarter for the year."
This rule also defines what kind of data these records should include. Again, you can check them out on the link above.
To sum it up: the retention period for W-4 forms is four years minimum, after the date the taxes were due or paid (whichever one is later).
Where to Get a W-4?
W-forms can be downloaded from the IRS website, and they are available in English and Spanish. If you are an employer, it's your responsibility to provide these forms to your employees.
If you need a helping hand to fill these forms out, the IRS has issued instructions on how to do it correctly on their website.
W-4 Allowances Explained
How much will be withheld from the employee's paycheck depends on their wage and the number of allowances they qualify for. So if you wonder how many allowances you should claim on your W-4, it's good to know that the more you claim, the less will be withheld from your paycheck.
Personal and work changes like a marriage, the birth of a child, or a new job affect the number of allowances an employee can claim.
Word of advice: if you want to ensure you don't owe anything at the end of the year, increase your withholding.
The IRS offers employees their tax withholding calculator to estimate how much of their income will be withheld based on the information they've provided in the W-4.
What Is a W-2 Form?
Form W-2 or Wage and Tax Statement is a document that needs to be created annually for the IRS and each of the employees.
The W-2 form is a tax document containing information about the employee, earnings, tax deduction, savings, retirement, and childcare.
The definition above touches upon several important information this document includes :
This document has a different purpose compared to the W-4 document. It's a reporting vehicle for the IRS. It informs this federal agency how much each of the employees was paid during a certain year and the amount of tax that was withheld.
Employee W-2 forms can be filed electronically or completed manually. Either way, they need to be submitted to the Social Security Administration (SSA), state and local governments, and the employees.
When Are W-2 Forms Due?
The employers are required to send the W-2 forms for the previous year to the IRS and their employees by January 31st. These documents will be due on January 31st, 2023, for the 2022 tax year. These tax documents must be submitted for each employee.
Employers need to have another important thing on their minds. Every individual who has worked for them during the previous tax year needs to get their W-2 form even if they aren't employed with their organization.
Where to Find a W-2?
Employers handling the payroll by themselves can download the W-2 form from the official Internal Revenue Service website. The IRS has also provided employers with instructions for this document to help them complete it.
Customized W-2 Forms
You can also find several customized W-2 forms on the IRS website. These include:
The W-2 form doesn't apply to the so-called "1099 employees" or the independent contractors and freelancers. This is because there are different types of documents (the two most common 1099s are 1099-NEC and 1099-MISC) issued to them to report their income to the IRS.
Providing your employees with the wrong form can result in potential fines, so make sure to understand which form you need to use to stay compliant.
W-4 vs W-2:Instructions on Filling Out the Forms Properly
W-4: The Employee's Withholding Certificate
W-4 form is the document that tells the employers and the payroll department how much tax should be withheld from their employee's paycheck.
The W-4 document is relatively simple to fill out. Step 1 refers to the standard personal information. This is also where you indicate whether you're single or married.
Step 2 contains informationlike a spouse's income or a freelance income. In other words, it lists the factors that can affect the amount of taxes withheld.
Step 3 records the number of your children or other dependents.
Step 4 is an optional one. However, you can use it to indicate reasons for withholding more or less from your earnings. For instance, passive income from investments will result in increased annual income, and subsequently, it will boost the amount of taxes you owe.
W-2: Wage and Tax Statement
Box 1 of the Wage and Tax Statement is where you need to enter your employee's gross income during the year.
Box 2 of the W-2 form reflects the information your employee provided in their W-4 tax form, and it displays the amount of taxes that were withheld from their income.
Workers in the service industry who receive a part of their pay in the form of tips need to list how much they reported in tips in box 7 and how much their employer reported paining them in tips in box 8.
Box 9 is left empty.
If applicable, box 10 displays the dependent care benefits you received from your employer.
Other boxes in this form are straightforward and refer to deductions related to Social Security (boxes 3 and 4) and Medicare (boxes 5 and 6).
W-2 vs W-4: Wrapping It Up
Staying compliant and taking care of the required IRS paperwork can be taxing. So, it’s no surprise that people get confused with the W-2 vs W-4 topic. To sum it up: employers need a W-4 tax form to collect tax-related information on their new hires and employees who had a personal or work change.
This document is the input for the W-2 form that is submitted to the IRS at the end of each year. In addition, it serves as a report on an employee's annual wages and the amount of taxes withheld.
Payroll taxes can be overwhelming, especially if you aren't clear about the paperwork requirements. Therefore, it is vital to understand what W-2 and W-4 documents are for, how to fill them out correctly, and when to submit them. In addition, it can help you prevent any unpleasant situations at tax time.
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Vesna is a psychologist, researcher, and writer with a wide range of interests focused on one goal: utilizing digital solutions to take businesses to the next level. Her expertise in human resources and workforce trends combined with her understanding of software’s role in business optimization is invaluable in helping them stay on top of the curve.
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