W2 vs W4: A Comprehensive Guide to Employee Tax Forms

Farwah Jafri | June 28 2024

Understanding the varying types of tax forms can leave even expert accountants scratching their heads. Two of the documents that confuse many businesspeople are the W2 and W4 forms. Let’s break down the W2 vs W4 form comparison, making it easier for you to understand the forms’ purposes, differences, and significance.

W2 vs W4 form Comparison

Here’s all the basic information you need to know!

What is a W4 Form?

The IRS W4 form, also known as the Employee’s Withholding Certificate, is a document an employee would typically fill out upon hiring (or if their withholding or filing status changes). This is primarily done to inform the employer of the specific amount of tax to withhold from the employee’s paycheck.

This form typically requires an employee to inform you about their tax filing status; whether they are single, head of household, married filing jointly, or married filing separately. It also tells you all you need to know about whether they work additional jobs, have a spouse who is employed, or claim dependents. In certain states, a specific state version of the W-4 form is also required so state income taxes can also be withheld from their salary.

Key Information on a W4 Form

The W4 form includes the following sections:

  • Personal information: Employee’s name, address, Social Security number, and filing status (single, married, etc.).
  • Multiple jobs or spouse’s working status
  • Dependents: Number of dependents and the amount of credit they bring.
  • Other adjustments: Additional income, deductions, and extra withholding.

What is a W2 Form?

The IRS W2 Form, also known as an employee’s Wage and Tax Statement, is filled out by an employer for each employee who is paid $600 at the very least for the tax year. This also needs to be filed with the Social Security Administration (SSA).

The W2 Form is primarily used to record how much your employees are paid, including their wages, tips, if any, and other kinds of benefits they receive as well as Medicare, Social Security, state-based taxes, and much more.

Employers need to keep in mind that they are required by law to fill out, file, and distribute a W2 form for each employee who is paid at least $600 within the given tax year, even if they are no longer employed. These forms can be distributed and filed electronically. In fact, payroll services such as Gusto make it much easier to manage this.

Key Information on a W2 Form

The W2 form contains multiple sections, each providing specific information:

  • Employee’s personal information: Name, address, Social Security number.
  • Employer’s details: Name, address, and Employer Identification Number (EIN).
  • Wages, tips, and other compensation: Total earnings paid by the employer.
  • Federal income tax withheld: Amount of federal income tax withheld from the employee’s wages.
  • Social Security and Medicare taxes withheld: Amounts withheld for Social Security and Medicare.
  • State and local taxes: If applicable, the amount of state and local taxes withheld.

W2 vs W4 Form: Key Differences

What is the W2 and W4 difference that stands out for you? Here are some key differences you can keep in mind

W2 vs W4 Form: Why They Matter

Understanding the w2 vs w4 form is essential for effective tax management. Here’s why they matter:

For Employees

  • Accurate Tax Filing: The W2 form provides the necessary information for accurate annual tax filing.
  • Proper Tax Withholding: The W4 form ensures the correct amount of tax is withheld from your paycheck, helping to avoid underpayment or overpayment of taxes.

For Employers

  • Compliance: Proper handling of W2 forms ensures compliance with IRS regulations.
  • Payroll Management: Accurate W4 forms help in managing payroll and withholding the correct amount of taxes.

How to Complete a W2 Form

You can complete your W2 form either manually or by using payroll software. The W2 form is divided into boxes labeled from A to F and 1 to 20. Follow these steps to complete it accurately:

Sections A to F

Fill out these sections with the employee’s and employer’s details. This includes the employee’s name, address, Social Security number, and the employer’s name, address, and Employer Identification Number (EIN). If your business does not use control numbers, you can leave the relevant boxes blank.

  • Box 1: Enter the employee’s total taxable income for the year.
  • Box 2: Report the total federal income tax withheld.
  • Box 3: Input the employee’s Social Security wages, ensuring the amount does not exceed the annual Social Security wage base.
  • Box 4: Enter the total Social Security tax withheld, which is 6.2% of the amount in Box 3.
  • Box 5: Record the employee’s Medicare wages and tips. This amount may be higher than Social Security wages since there is no wage base limit for Medicare.
  • Box 6: Report the Medicare tax withheld, which is 1.45% of the amount in Box 5.
  • Box 7: Enter any Social Security tips, ensuring the total of Social Security wages and tips does not exceed the wage base.
  • Box 8: Include any allocated tips.
  • Box 9: Leave this box blank.
  • Box 10: Report dependent care benefits.
  • Box 11: Record any non-qualified plans.
  • Box 12: Enter any applicable codes and corresponding amounts.
  • Box 13: Check the appropriate boxes for statutory employees, retirement plans, and third-party sick pay.
  • Box 14: Enter any other miscellaneous payments.
  • Box 15: Record your state abbreviation and state ID number.
  • Boxes 16 to 20: Enter details for state and local wages, tips, and taxes if applicable.
  • Remember, the IRS requires companies filing more than 10 W2 or 1099 forms to do so electronically. Also, these forms must be filed by January 31.

How to Complete a W4 Form

New employees usually fill out the W4 form during the onboarding process. Follow these steps to complete it:

  1. Personal Information: Enter your name, address, and Social Security number.
  2. Filing Status: Indicate your tax filing status (e.g., single, married).
  3. Other Income: Provide details of any other income sources if applicable; otherwise, skip this section.
  4. Dependents: Enter the number of children you have and multiply by the applicable Child Tax Credit amount. This section applies if your income is below $200,000 (or $400,000 for joint filers).
  5. Deductions and Adjustments: Use the Deductions, Adjustments, and Additional Income worksheet if you have additional deductions or income, or if you want to adjust your withholding further.
  6. Signature and Date: Sign and date the form to complete it.

Following these steps will ensure your W2 and W4 forms are filled out correctly, aiding in accurate tax reporting and withholding.

Common Questions

1. Do I Need to Fill Out a W4 Every Year?

No, you only need to fill out a new W4 form when you start a new job or want to adjust your tax withholdings. The W2 form, however, is issued annually by your employer.

2. What Happens If I Don’t Fill Out a W4 Correctly?

Incorrectly filling out a W4 form can result in too much or too little tax being withheld from your paycheck. This can lead to a large tax bill or a smaller refund when you file your taxes. It’s important to use the IRS’s online estimator or consult with a tax professional to fill out the W4 form accurately.

3. Can I Update My W4 Form Mid-Year?

Yes, you can update your W4 form at any time during the year if you experience changes in your financial situation, such as getting married, having a child, or getting a second job. Updating your W4 ensures that the correct amount of tax is withheld from your paycheck.

4. What Should I Do If I Lose My W2 Form?

If you lose your W2 form, contact your employer to request a new copy. Employers are required to keep copies of W2 forms for several years and can provide you with a replacement. You can also contact the IRS for assistance if you cannot obtain a copy from your employer.

Common Questions

Final Thoughts

Understanding the differences between the w2 vs w4 form doesn’t have to be overwhelming. By understanding their purposes and how to properly use them, you can manage your taxes more effectively.

The W2 form provides a summary of your earnings and taxes withheld over the year, essential for filing your annual tax return. The W4 form allows you to control the amount of tax withheld from your paycheck, ensuring you pay the correct amount of tax throughout the year.

By staying informed and accurately managing these forms, both employees and employers can ensure compliance with tax regulations and avoid potential issues with the IRS. Whether you’re starting a new job, adjusting your withholdings, or preparing to file your taxes, understanding the differences between the w2 vs w4 form is a crucial step in effective tax management.

Looking to make your tax season easier? Perhaps a financial expert is just what you need! Monily’s experts can dedicate their attention to your tax concerns and add efficiency to the process so you can focus on your core functions! Contact our experts today and learn more.

Author Bio

Farwah is the Product Owner of Monily. She has an MBA from Alliance Manchester Business School, UK. She is passionate about helping businesses overcome challenges that hamper their growth, which is why she is working at Monily to facilitate entrepreneurs to efficiently manage business finances and stay focused on growth.