W-2 vs W-4: Everything you Must Know

Employers and employees must complete certain documentation when a new employee starts. Employers must also keep up the documentation throughout the time the employee works at the company. 

Two of the most important and common forms are the W-2 and W-4. Here’s everything you must know about the forms and how they work.

What is a W-2?

The W-2 is an IRS required document that employers must provide to report an employee’s annual earnings, taxes paid, and specific deductions. Employees need the document to file their tax returns to make sure they report their income, taxes paid, and deductions correctly.

Who Should Fille out a W-2 Form?

Employers are required to provide the W-2 to each employee and the IRS annually. Employers can complete them by hand and mail them to the IRS along with the employee or complete them electronically.

When is a W-2 Completed?

All employers must deliver W-2s by January 31 of the year following the tax year. For example, to report an employee’s earnings in 2021, employers must deliver W-2 for 2021 by January 31, 2022. Many employers have payroll software systems that automatically create W-2s at year end.

Why do you Need a W-2?

A W-2 from 2021 is how the government determines how much an employee owes in taxes, or how much they overpaid in the year 2021. It’s a big part of any taxpayer’s tax return. 

What is a W-4?

A W-4 form is an employee’s withholding allowance certificate. Employees must complete a W-4 when they start a new job as it’s what tells employers how much to withhold from their pay. Employees should also update their W-4 whenever they have changes, such as getting married, having a child, or getting divorced.

Who Should Fill out a W-4 Form?

Employees are responsible for completing their W-4 when they start their job. It should be part of the orientation paperwork. If it isn’t completed by the first day, at the very least, it should be completed before the first pay period.

Why do you Need a W-4?

Employers must require a W-4 so they know how much to withhold from an employee’s paycheck. Employees must complete it so they have the appropriate amount of taxes withheld based on their personal situation (kids, no kids, etc.).

W-2 vs W-4 – How to Complete the Forms

It’s important to know how to complete both forms, even though W-2s are for employers and W-4 forms are for employees, having a general understanding of both forms is important.

How to Complete the W-2

The W-2 is an employer’s responsibility and must be provided to the IRS and the employee. Any employee that makes over $600 in a year must receive one.

Many software programs automatically create them, but they can be done manually too. Employers need the employee’s Social Security number, address, and full name. They also need their EIN (employer identification number) and business address. 

In the wages section, employers must report all income earned including wages, tips, or any other income. The employer must also disclose the amount of taxes withheld including federal income tax, state tax, Social Security, and Medicare tax.

How to Complete the W-4 Form

Employees must complete the W-4 at least when they start a new job, but also anytime their situation changes.

The employee must provide his/her personal identifying information including their Social Security number. They must disclose their marital status and how many allowances they will claim. The most common allowances are if the employee has children but there are other reasons they may claim an allowance.

The more allowances an employee claims, the less taxes the employer withholds from his/her paycheck. This may increase the amount of taxes the employee owes at tax time depending on their situation.

Employees can change their W-4 at any time, even mid-year if they decide they aren’t withholding enough from their checks.

Where to Send the Forms – W- 2 vs W – 4

Another difference between the W-2 vs W-4 is where and how they get filed. 

W-2s get filed with the Social Security Administration. They must be in for every employee by January 31. Employers must also send a copy to employees so they can complete their taxes. Employers can provide the documentation electronically or on paper.

W-4s don’t have to be sent anywhere but should be kept on file with the employer. All information should be put into the payroll system but keeping the certificate on file is important in case of any questions, concerns, or software issues.

Tips for Completing and Filing W-2s and W-4s

Do the Work Early

Don’t wait until the last minute to ask for a W-4 or to prepare W-2s. Employees should be proactive in asking for the documentation and employers should have a plan to prepare the documents early. Waiting until the last minute causes stress and increases the risk of mistakes.

Use Electronic Resources

Filing the W-2 and W-4 electronically is the best way to prevent lost documents or even stolen data. It’s also often more convenient and gets the information where it needs to go faster. The IRS requests employers to file electronically but it’s not required if they aren’t able.

Work with a Professional

Any employer that isn’t sure how to handle the documentation should consult with their tax professional. Mistakes on W-2s or W-4s can affect a business’s livelihood and mess with an employee’s taxes.

Final Thoughts

W-2s and W-4 forms are important for every business and employee. They determine an employee’s tax liability and ensure that the proper amount of taxes are paid or refunded if an employee overpays.

Employers can’t give employees advice when completing their W-4s, but they can provide them with the necessary resources to make the right decisions. W-2s are just factual data from payroll that can be automatically input if an employer uses payroll software.

Both documents are equally important and should be filed in a timely manner!

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