Understanding the difference between W-4 and W-2 forms is essential for employers, especially when managing a diverse workforce. These forms are crucial in the United States for tax processing and compliance.
What is a W-4 Form?
- Purpose: The W-4, or Employee’s Withholding Allowance Certificate, is used by employees to inform employers how much federal income tax to withhold from their wages.
- Who Fills it Out: It is completed by the employee.
- Key Information: Employees declare their withholding allowances, marital status, dependents, and any additional income.
- Frequency of Update: Employees should fill this out at the start of employment and update it with any significant life changes.
- State Variations: Some states have their versions, while others, like Texas or Florida, do not require state tax withholding.
What is a W-2 Form?
- Purpose: The W-2 form, or Wage and Tax Statement, is used to report an employee’s annual wages and the amount of taxes withheld from their paycheck.
- Who Fills it Out: It is completed and filed by the employer.
- Key Information: It includes details about the employee's earnings, federal and state taxes withheld, and contributions to Social Security and Medicare.
- Annual Requirement: Employers must issue this form annually by January 31st for the previous tax year.
Key Differences Between W-4 and W-2
- Form's Purpose:
W-4: Determines how much federal income tax to withhold from the employee's paycheck.
W-2: Reports the employee's annual earnings and taxes withheld.
- Who Completes the Form:
W-4: Filled out by the employee.
W-2: Completed by the employer.
W-4: Guides tax withholding for each paycheck.
W-2: Summarizes the total earnings and taxes withheld for the year.
- Filing Frequency:
W-4: Typically filled out at the start of employment or after significant personal or financial changes.
W-2: Filed annually by the employer.
- Practical Applications for Employers
W-4 Submission: Employees should submit a completed W-4 during their onboarding process, with updates as necessary.
W-2 Distribution: Employers must file and distribute W-2 forms to their employees by January 31st each year.
Employers must ensure accuracy in both forms to maintain tax compliance and proper payroll management. For companies with a global workforce, like those using international hiring platforms, understanding these forms is vital for managing U.S.-based employees. It’s important to note that contractors or self-employed individuals use different forms, such as 1099s, not W-2s.