June 2023

All businesses must report state and federal taxes for their employees. Consequently, they must use Form W4 and Form W2 to collect the information from an employee and determine the appropriate withholding amount.The key difference between these tax forms is that employees are responsible for filing out W4s, while employers fill out W2s and send them to their employees at the end of the year.The differences between W2 vs. W4 forms don’t stop at their general purpose. Understanding these differences ensures a company and its employees can report income taxes accurately.Let’s look at the vital differences between these important tax forms.The Overview of Form W4Most taxpayers are familiar with Form W4 Employee’s Withholding Allowance Certificate because employers require their new hires to fill them out during onboarding.This four-page tax document collects the employee’s private data, such as their marital status, home address, and social security number.It also allows the employee to claim dependents, make standard deductions from their withholding amount or specify if they want any additional tax deducted from their monthly pay.Employers use the information from Form W4 to determine the employee’s withholding amount and calculate how much they should pay for federal or state taxes.Workers can choose to withhold less from each paycheck and cover the difference at the end of the tax year or have a higher withholding amount and pay less taxes at the year’s end.The IRS recommends updating the information on this tax form annually or whenever your ‘financial or personal situation changes.’ Employers don’t have to submit W4 forms to the IRS unless they receive a request from the agency.The Overview of Form W2W2 Wage and Tax Statement is a document that lists an employee’s income and provides guidelines employers must follow when withholding taxes from an employee’s wages.The employer is responsible for filling out these forms and sending copies to the employee, State Tax Authority, and Social Security Administration. The document must include the following information:The employee’s total wages.Tips and bonuses.Social Security, Medicare, federal income, and state taxes.An employee should receive three copies of this tax form before February 1 of the following tax year. Employees must then attach one copy of the document with their tax return, send the second copy to state tax authorities, and keep the third for their personal records.The employer should also keep a copy of this form for record-keeping purposes. Your employer must issue Form W2 if they withhold payroll taxes from your wages, pay you over $600 for your services, or if you didn’t make an exemption from withholding on Form W4.The Main Differences Between Form W2 And Form W4Form W4 informs an employer how much tax they should withhold from your wages, while Form W2 shows you (the employee) your gross wage amount and the amount withheld for payroll taxes.The main difference between Form W2 and Form W4 is that they refer to different aspects of the procedure employers must follow when withholding employees’ taxes. Let’s look at other differences between these tax forms.Who is Responsible for Filling Them Out?As we noted, new hires must submit Form W4 during onboarding so that the hiring company can know their filing status, the number of dependents, and all other information that can affect the withholding amount.On the other hand, your employer must fill out Form W2 based on the company’s payroll data and the information you supplied on Form W4.Deadlines for Submission of W2s and W4sYou’ll have to submit a W4 form to your employer within the first few weeks of your employment so that the company you work for can withhold payroll taxes from your wages.In addition, you’ll be responsible for updating information on this tax form if you get a child, marry your partner or experience any other life event that affects your taxable income.On the other hand, your employer is under obligation to send you Form W2 before the start of each filing season. Hence, your copies of this tax form should reach you before January 1 or February 1 at the latest so you can file your tax return on time.How the Forms are Used?Form W4 is utilized primarily by employers to determine the correct tax withholding amount. Employers aren’t required to submit these forms to the IRS, but they should keep them on record in case the IRS requests access to them.You must file Form W2 issued by your employer with your tax return. In case you have multiple employers, you should submit a copy of each Form W2 you received from your employers.The General Purpose of The DocumentThe purpose of W4, as stated on the form, is:‘Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. If too little is withheld, you will generally owe tax when you file your tax return and may owe a penalty. If too much is withheld, you will generally be due a refund.’Although Form W2 doesn’t contain an explanation of its purpose, it’s not difficult to understand its primary function.This tax form confirms that your employer is following withholding compliance guidelines and serves as proof that all information taxpayers include on a tax return is accurate.Avoiding Mistakes on W2 And W4 FormsAny discrepancy, even accidental, between the information you provide on your tax return and the information the IRS and other state or federal agencies receive from your employer can raise suspicion of tax fraud and prompt the IRS to audit your return.As a result, you must double-check if the withholding amount on Form W4 is calculated correctly and inspect the document for clerical and math errors. Failing to update the information on their W4s is one of the most common mistakes taxpayers make.Hence, you should ask your employer for a new Form W4 annually or any time the information on your previous Form W4 becomes obsolete.The same is true for Form W2 you receive from your employer. Although companies rarely make mistakes on these tax forms because they use digital payroll management tools, you should still review all information before filing the document with your tax return.It’s advisable to occasionally examine your pay stub and check if your tax withholding differs from the amount you specified on Form W4.Filing taxes with TurboTax or similar tax software will reduce the chances of making mistakes when using the information from Form W2 to complete your tax return.Frequently Asked QuestionsDo Independent Contractors Receive Form W2 From Employers? Employers issue Form 1099-Misc to independent contractors instead Form W2 at the end of the year. In addition, an independent contractor has to fill out Form W-9 and not Form W4 before commencing work for a hiring company. How to Change Information on Form W4 After You Submit It to Your Employer? You must request a new Form W4 if you determine that some of the information on the document you submitted is incorrect. What to Do If Your Employer Doesn’t Issue Form W2 on Time? Try speaking to your employer if you notice that your copies of Form W2 will be late. You can call 800-TAX-1040 and talk to the IRS representative, who can request this form from your employer on your behalf. Filing Form 4852 Substitute for Form W2 is also an option if your employer cannot send you a copy of Form W2 before the filing deadline. How Many Allowances Should I Claim on Form W4? Married taxpayers with one or more children should claim three allowances on Form W4. You shouldn’t claim more than one allowance if you’re single and don’t have children. W2 vs. W4 – How These Tax Forms Affect Businesses?Staying compliant with withholding guidelines is paramount for all businesses, as violating these rules can have severe legal consequences.The same is true for employees who provide false information on a Form W4 causing the employer to withhold fewer taxes than required.The differences between Form W4 and Form W2 boil down to their purpose since the aim of W4 is to give the employer information they can use to withhold state and federal taxes.Form W2, on the other hand, enables a company to withhold taxes, makes filing a tax return possible, and allows tax authorities to determine a taxpayer’s tax liability.Using erroneous information on either form can have far-reaching consequences on a business and result in a lengthy legal battle with the IRS.

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Month: June 2023

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