Form W-2 VS W-4. When you are starting a new job, you complete Form W-4 to determine how much tax employers should withhold from your paychecks. Also, at the end of each year, employers file Form W-2 to show the amount that was withheld.
At the end of the year, employees and IRS review the Form W-2 to know the total amount withheld and see if there is a need for a tax refund for the employees. The difference between Form W-2 VS W-4 lies in who fills out the forms.
Who fills the Form?
Employees fill the W-4 form within their first month on a job while the employer fills the W-2 form. The employer as well submits it to the IRS at the end of the year. Employers give employees a copy of their W-2 by Jan. 31. They must do so as long as they paid $600 or more to each employee at the end of the year.
What is the purpose of the forms? W-2 provides details about an employee’s earnings like gross pay, tips, and bonuses, federal tax contributions (social security and Medicare taxes). Further withholdings like retirement plans are also included in it. On the other hand, W-4 shows how much should be withheld from an employee’s paycheck and submitted to the IRS. This is usually based on an employee’s withholding preference, a number of dependents, and marital status.
Even though employers are responsible for W-2 forms, they can help their employees to fill it.
Instructions for Form W-4
W-4 is usually called the Employee’s Withholding Allowance Certificate. It demands an employee’s personal details like full name, address, marital status, SSN, and indicates for married people if they separately fill taxes.
Also, employees will show the allowances they claim such as deductions, dependent relatives, or having another job. The more allowances an employee claims, the lower tax withholdings for him. They must show the number of allowances they claim on their W-4 and the additional amount they want to withhold from each check. Also, they (employees) can reduce their withholdings if they qualify for income tax credits. They often have to pay both federal and state taxes.
Instructions for Form W-2
As an employer, file the W-2, IRS Wage, and Tax statement for your entire employee who gets at least $600 wages. You must do this even if you did not withhold any Medicare, social security tax. Make sure you have your employees’ social security number and your business’ employer identification number (EIN) and addresses.
Further, you must show your employee’s total yearly compensation even wages, tips, and amount of tax withheld.
Note that employees need their W-2 to file their annual tax returns. While the employer prepares their federal tax return, subtract the withholding amount from their tax bill. This will show if the employee should expect a tax refund or not. As an employer, provide W-2 to your state government for them to see how much state income tax you withheld from each employee.
To reduce the stress of making the payroll,
deductions, reporting and paying social security, Medicare, and income taxes, you can get a 3rd party payroll provider. For instance, Gusto, a 3rd party payroll provider does this work perfectly. It calculates and pays all state and federal taxes and issues W-2s and other tax forms to your new employees. Gusto collects W-4 forms during the onboarding process for new employees along with other personal details.
When employers file digitally, it saves time and they can get an email confirmation within 24 hours. This is more secure than sending paper confirmations through the mail.
However, not that even if you outsource your payroll duties, make sure that all the payments and deposits are made to IRS to avoid penalties. If you are making digital payments, go through Electronic Federal Tax Payment System (EFTPS). Ensure that your payroll service provider uses it.