{"id":2505,"date":"2021-06-29T13:37:28","date_gmt":"2021-06-29T18:37:28","guid":{"rendered":"https:\/\/www.northone.com\/blog\/?p=2505"},"modified":"2022-09-25T14:16:58","modified_gmt":"2022-09-25T19:16:58","slug":"w4-vs-w2","status":"publish","type":"post","link":"https:\/\/www.northone.com\/blog\/accounting\/w4-vs-w2","title":{"rendered":"W-4 vs. W-2 Tax Forms: Everything You Need to Know"},"content":{"rendered":"\n

With hundreds of different IRS forms, knowing which one to fill out and how can be confusing. Two important tax forms that you’ll likely come across are the W-4 and W-2 forms. If you want to know the differences between the W-4 vs W-2 and how each of them should be filled out, you\u2019ve come to the right place! Understanding how to use these forms is a small business bookkeeping basic<\/a> that can help to secure your long-term success.<\/p>\n\n\n\n

<\/span>W-4 vs W-2: Key Differences<\/span><\/h2>\n\n\n\n

The W-2 form is essentially a report of an employee\u2019s total earnings throughout the year. This includes bonuses and the total income tax withheld for important things such as Medicare taxes, social security, pension, and employee savings accounts. The form will also report the total amount of federal income taxes that were withheld. <\/p>\n\n\n\n

On the other hand, the W-4 is a form that determines the exact amount of taxes that will need to be withheld from an employee\u2019s paycheck. Since every employee is different, each one of these forms that are filled out will be unique. Each employee can choose to have a certain amount of taxes withheld; some will be more conservative than others. <\/p>\n\n\n\n

For instance, an employee can select to have more taxes taken out for their retirement, whereas others may prefer to have more taxes taken out so that they will not owe anything to the IRS at the end of the year. In other words, think of the W-4 as a financial plan for each employee. <\/p>\n\n\n\n

<\/span>When to use a W-4 vs W-2<\/span><\/h3>\n\n\n\n

Using W-2 vs W-4 forms differs depending on whether you are a business owner or a contractor. As a business owner, you will not personally receive either a W-2 or a W-4 form. But, if you have employees you will need to send them both forms by January 31st. If you are an independent contractor, you will instead receive a 1099 form. As a business owner that works with independent contractors, it is your responsibility to have each contractor complete the 1099. <\/p>\n\n\n\n

As mentioned, the W-4 form will determine how much should be withheld from each paycheck and will largely determine much of the information that goes into the W-2. For that reason, the W-4 should be completed and filed properly before any new employees receive their first paycheck. <\/p>\n\n\n\n

<\/span>Why are W-4s needed?<\/span><\/h3>\n\n\n\n

Both of these forms are important to the employee, the business, and the IRS for various reasons. W-4s are a critical first step in financial planning for any person. For the business, it will let them know exactly how much to withhold from each of their employee\u2019s paycheck. This will help businesses with budgeting and bookkeeping, and is also an effective way to prevent payroll fraud<\/a>.<\/p>\n\n\n\n

Finally, these forms help ensure that each year, the IRS receives federal income tax on time.<\/p>\n\n\n\n

<\/span>How to fill out W-2 tax forms<\/span><\/h2>\n\n\n\n

Who fills it out:<\/strong> The employer<\/p>\n\n\n\n

Who it is for:<\/strong> The IRS and the employee<\/p>\n\n\n\n

If you are an employer, you will need to file should file six copies of the W-2. One will be filed with the Social Security Administration, one with the state tax agency, and three copies will be sent to the employee.<\/p>\n\n\n\n

First and foremost, to fill out the W-2 form you will need an employee social security number in addition to the employer (EIN). The form also calls for both the addresses of the employee and the business. The employee\u2019s annual earnings will go inside of box 1. In boxes 2,4, and 6 is where you will find the information for how much federal income tax, social security, and Medicare taxes have already been paid throughout the year. <\/p>\n\n\n\n

If the employee works in the service industry, you can find information for tips in this form as well. Box 3 indicates the income amount that was taxed for social security purposes. <\/p>\n\n\n\n

The yearly number of tips earned will be inside boxes 7 and 8. As for box 9, you can simply ignore this box. The government ended the pay-as-you-go option for the Earned Income Tax Credit in 2011. <\/p>\n\n\n\n

Boxes 11 through 20 are slightly more complex\u2026let\u2019s break them down. <\/p>\n\n\n\n