W2 and W4 Forms are important IRS documents for your company and your employees. Form W-4 is used to provide information about how much tax should be withheld from your employees’ paychecks, while Form W-2 is used to report annual income and taxes to the IRS.
The difference between a W-2 and W-4 is that the W-4 tells the employer how much tax to withhold from an employee’s paycheck; W-2 shows how much an employer-paid an employee and how much tax is withheld over the course of the year. Both are required IRS tax forms.
This writing compares Forms W-2 and W-4 and not only explains the key differences between the two, but also explains how to properly fill out each form for your business.
Table of contents
What is W-2 vs. W-4?
You can find both the W-2 and W-4 online at IRS.gov. The W-2 and W-4 must be completed for each of your employees and are part of the personnel, accounting, and payroll processes in your company.
What is a W-4 used for?
The W-4, also known as the employee’s withholding tax certificate, tells the employer how much income tax to withhold from an employee’s wages.
Every employee should correctly fill out and update a W-4 on their first day of work (or at least before their first paycheck) as part of their hiring papers if their personal or financial situation changes.
Once your employee has completed a W-4, use the information to calculate the correct federal tax to withhold on each payroll.
What is a W-2 used for?
Form W-2 is a payroll and tax report that employers produce annually for each of their employees.
The W-2 shows the gross income of the employee as well as their deductions for income, social security or health insurance taxes, certain contributions to childcare accounts, and contributions to certain pension accounts.
Employees need their W-2 forms to file their personal tax returns. You can submit W-2 forms electronically or fill out manually and then submit them to the Social Security Administration (SSA), state and local governments, and your employees. Many payrolls or accounting software platforms assist with W-2 filings.
What is the difference between W-2 vs. W-4 form?
W-4 Form: The W-4 form tells you as an employer how much tax you have to withhold from your employee’s paycheck.
W-2 Form: The W-2 form is a report you create that tells the employee (as well as the IRS) his gross wage and tax withheld for the year.
A W-4 form is completed by the employee and used by the employer to calculate how much income tax is to be withheld.
The purpose of Form W-2 is to indicate how much the employee was paid and how much tax was withheld in the past year.
The document is used by the IRS to determine if the employee has paid the correct amount of tax. Employers have their income, social security, and Medicare taxes withheld from their wages by employers.
This is sent to the IRS year-round and when it is time for the annual return, employees will either receive a refund or invoice for the remainder of the taxes they owe.
Who completes the W-2 vs. W-4 forms?
W-4 Form: Employees fill out Form W-4. Each employee reports personal information and withholding taxes on the W-4.
As an employer, you only need to fill out part of the W-4 when using the document to meet government reporting requirements for new hires.
W-2 Form: The employer fills out the W-2 with the wage data for the year. You fill out a W-2 for each employee.
When is W-2 vs. W-4 completed?
W-4 Form: Employees should complete a W-4 form as part of their induction documents. Because the W-4 determines how much tax to withhold from an employee’s paycheck, the employee should complete a W-4 before their first payday.
Employees can fill out a new W-4 if their personal or financial situation changes and they want to adjust their deductions as a result.
W-2 Form: You must submit a W-2 for each employee by January 31st each year. The W-2 reflects the data from the previous year. A W-2 filed in January 2022 will therefore reflect salary and tax information from 2021 onwards.
How to Submit W-2 vs. W-4 Forms
W-4 Form: If your employee fills out a W-4 form, you should submit it (either electronically or physically), but you don’t have to submit it to the IRS or the Social Security Administration.
All you need to do is submit a W-4 form if you are going to use it to meet state recruitment reporting requirements.
W-2 Form: You must submit all W-2 forms to the Social Security Administration either by mail or electronically. In addition, you must distribute completed W-2 forms to all of your employees by January 31st each year. You may also need to file a copy with your state or local tax authority.
To make sure you meet the W-2 and W-4 requirements for your business, let’s look at how to find and fill out each form, as well as some tips to make the process easier.
W-4 Form: Employee’s certificate of retention
Ideally, employees fill out a W-4 on their first day of work – and definitely before their first paycheck. The W-4 tells employers how much tax to withhold from employees’ paychecks during payroll.
You can find blank W-4 forms on the IRS website.
- Some HR or payroll software allows employees to fill out W-4s electronically.
- You cannot tell your employees what to wear on their W-4, but you can offer them resources to help them determine their correct deduction.
- As soon as an employee has completed a W-4, he will return it to you; Please keep the form for future reference. Enter the information into your payroll system to make sure you withhold the correct tax amount from every paycheck.
- Employees can change their W-4 at any time. You should update your filing system with the new W-4 information and adjust your wage data accordingly.
- Depending on the state, your employees may also need to file state withholding tax forms. Government withholding tax forms specify government income tax withholding and follow the same procedure as the W-4.
You can visit your state’s Treasury and Tax Office website to confirm state tax withholding requirements.
W-2 Form: Wage and tax return
As an employer, you are solely responsible for completing and submitting the W-2 forms for each of your employees annually and submitting these forms to the SSA. The SSA recommends filing W-2s electronically, but you can also submit them physically.
You must complete, distribute, and submit your W-2s by January 31st for the previous year at the latest. You can access blank W-2 forms on the IRS website.
In many cases, your accountant or payroll administrator can help you with W-2 filings. In addition, many payroll software platforms allow you to submit W-2s through their system as well.
To fill out the W-2 form for each of your employees, you will need to complete the following:
- The employee’s social security number.
- Your Employer Identification Number (EIN).
- Your name, address and zip code.
- Name, address and post code of the employee.
- The employee’s wages and tax withholding.
What you wear to a W-2 depends on your company and the individual employees. For example, long-term care and retirement benefits may not apply to every employee – and therefore may not apply to every W-2 you complete.
Again, the IRS provides detailed instructions on how to fill out each box within the W-2.
- After you have completed your W-2 forms for your company, submit them to the SSA and distribute them to your employees.
- Submit and provide a W-2 for every employee who worked for you during that tax year, even if they no longer work for you.
- You fill out W-2s only for employees, not for contractors. For 1099 contractors, on the other hand, submit the 1099-NEC form (formerly 1099-MISC for tax years 2019 and earlier). The 1099-NEC Form (and earlier 1099-MISC) is similar to a W-2 in that it states what you paid the contractor and how much tax you withheld for that person.
Like Forms W-2, 1099-NEC, and MISC, submit them before January 31st and distribute them to the independent contractors who worked for you during the tax year.
Tips for Small Businesses Filing Forms W-2 and W-4
These tips will help you streamline your W-2 and W-4 processes so that you fill out the forms correctly and efficiently.
- Be proactive: Don’t wait until the last minute to fill out these forms. This can result in errors or missed deadlines, which in the case of W-2, can trigger a late penalty from the IRS.
The best thing to do is to have your employees fill out their W-4s on or before the first day of work and enter the relevant information into your payroll system as soon as possible.
For W-2 in the New Year, start working on them to meet the January 31st deadline.
- Contact a specialist: Although the IRS website has detailed instructions for both forms, they can still be confusing.
It is helpful to consult a chartered accountant or tax advisor who is experienced with IRS tax forms and can answer questions or help you fill out them. - Submit electronically if possible: When it comes to W-2, the IRS recommends that you file electronically. That saves paper and is faster and easier.
In addition, it may be easier for employees to fill out their W-4s electronically. W-4s electronic storage helps you stay organized and access them quickly when you need them.
- Use payroll or HR software: Using payroll or HR software with W-4 and W-2 capabilities is perhaps the easiest way to streamline your tax forms processes.
On the platform, you can not only fill out forms and, if necessary, store them (depending on the selected system), but your employees can also fill out their forms and access them later if necessary.
- Be careful: As with all of your business tasks, be extra careful when doing W-2s and helping your co-workers do their W-4s.
Errors in these forms can harm your company and your employees – especially during an audit. Investing a little more time now can save you time (and money) in the long run.
Conclusion
While W-2 and W-4 are both important IRS tax documents, each form has a different purpose.
Knowing what these forms are and explaining the difference between the two to your employees can help prevent them from being caught off guard at tax time.
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