Once you start hiring employees, you’re going to need to get familiar with some new tax forms. Two of them are the W-2 and W-4 forms which often get mistaken for each other. If you’re trying to figure out the what, how, and when of W-2 vs W-4 forms, we’ve got your answers.
What is a W-2 form?
Form W-2, Wage and Tax Statement is a year-end tax form. Employers are responsible to fill one out and provide it to each individual employee to detail an employee’s pay and what has been withheld from them for taxes like social security and medicare taxes.
Employees will use the information reported on the form including the gross pay from employee wages and tips, payroll taxes, and contributions to a company retirement plan to complete their personal income tax filing.
There are multiple copies of the W-2 form. The six copies you must complete are:
- Copy A for the Social Security Administration
- Copy 1 for state, city, or local tax departments
- Copy B to be filed by an employee with their federal tax return
- Copy C for the employee’s records
- Copy 2 to be filed by an employee with their state, city, or local tax return
- Copy D for the employer’s records
Further reading: Payroll Tax: What It Is, How to Calculate It
What is a W-4 form?
Form W-4, Employee’s Withholding Certificate is a one time tax form. It’s a form that’s completed by employees when they start a new job at a different organization to provide employers with the information they need to use the right withholding amount for an employee’s payroll taxes.
This means it’s not your responsibility to fill it out. Instead, it’s your responsibility to make sure your new hires fill it out before they start earning wages, salaries, tips, or other compensation.
Who uses W-2 and W-4 forms?
W-2 and W-4 forms are only relevant to businesses that are running payroll. For example, if your business is a sole proprietorship and you’re the only worker who draws money from the business monthly, you don’t need to worry about them. Instead of withholding payroll taxes from a salary, you make self-employment tax payments based on your business’s earnings. If you don’t run payroll, you don’t need to fill out W-2 or W-4 forms.
Further reading: The Top 19 Self-Employment Tax Deductions
How Bench can help
Once you start hiring employees, there’s going to be new expenses that you need to track. From the salaries and wages, tips, benefits, or even just comping a meal during a tougher than usual workday, these expenses need to be accurately accounted for tax filing.
With Bench, you have a bookkeeper guiding you through the process. By accurately categorizing and tracking different payroll expenses, you can focus on running your business knowing your finances are ready for investors, lenders, and even the IRS. Get a previous month of bookkeeping complete in one business day with our free trial.
How to use W-2 tax forms
Who fills it out: The employer
Who it’s for: The employee, and the IRS
A W-2 form is a year-end tax document that you’ll fill out as an employer. Simply put, it’s a report on what you paid the employee over the course of the year—including bonuses and tips—and total payroll taxes—income withheld for things like social security, pension, Medicare taxes, or savings.
It also reports how much federal income tax you withheld. The amount of taxes you withhold will depend on the employee’s total wages for the year.
Every one of your employees gets a W-2 (usually by mail) at the end of the tax year. They’ll use the information from their W-2 to complete their tax return. While the W-2 lists their income tax withholding, an employee may lower their tax liability after the fact by filing deductions or using tax credits.
When are W-2 forms due?
As an employer you’ll submit an electronic copy directly to the IRS usually by January 31 for the previous year. Since it needs to be provided to the IRS by this time, it makes sense to do all copies at once to be sent to everyone who needs one.
How to use W-4 Tax Forms
Who fills it out: The employee
Who it’s for: The employer
Completing a W-4 is an essential step in the process of hiring a new employee. Everyone who works for you needs to fill it out and submit it to their employer. Because of this, you don’t need to worry about filling out the form except for your business name, address, employer identification number (EIN), and the first date of employment.
A completed W-4 form provides you with an employee’s social security number and tells you exactly how much money you should withhold from the employee’s paycheck for the IRS. This will be based on their wage, as well as the number of allowances they qualify for.
Every employee’s paycheck is different, and every employee will have different financial plans. Some employees might set a conservative tax withholding to ensure they don’t owe any at the end of the year (and get a tax refund). Others might have an aggressive retirement savings plan. The W-4 tax form is where they tell you, the employer, exactly how they’d like to approach this.
Employees can estimate how much of their income will be withheld based on information on their W-4 by using the IRS tax withholding calculator.
When are W-4 forms due?
A completed W-4 form must be submitted by an employee to their employer within the first month of employment. Since this form contains essential information about what to withhold from an employee’s paycheck, it’s best to get it completed as soon as possible.
W-4 Tax Allowances
Everyone has a certain “tax allowance”—a number that determines how much or how little tax should be withheld. That number varies depending on their marital status (whether or not they’re head of household) and number of dependents. A single dad with three kids will have a greater tax allowance—so less tax will be withheld. A high earning single person will have a lower tax allowance, so it’s a good idea to withhold more tax.
Don’t worry, the W-4 form instructions spell this out in plain language. It’s a good idea for employees to fill out a new W-4 every year, or any time their personal or financial situation changes. They can do it easily online, at any time.
While some states also use W-4 forms for state taxes, others don’t. You’ll need to ensure your employees fill out forms for both federal withholdings and state tax withholdings. Find out what form you need, by state.
Do 1099 employees get a W-2?
Nope. Independent contractors aren’t eligible for a W-2 form. Instead, you’ll complete a 1099-NEC form for them at the end of the year. 1099 forms aren’t just for contractors: if you’ve paid anyone more than $600 for a service (or rent) in the course of the year—think your landlord or your lawyer—you’ll give them one too.
Each of these vendors and contractors will need your Taxpayer Identification Number and Certification to file these taxes. How do you share that? Use a W-9 form.
Further reading: 1099-NEC vs 1099-MISC: Differences, Deadlines, and How-To’s
W-2 vs W-4 cheat sheet
Here’s some simple shorthand for thinking about IRS Form W-2 (Wage and Tax Statement) and IRS Form W-4 (Employee’s Withholding Allowance Certificate).
The W-4 is all about input—the employee telling you what to do with their withholdings. The W-2 is all about output—telling the IRS what’s been done in the previous year. Form W-2 is one of the most common forms small business owners are required to submit, while every employee needs to file a W-4.
|W-4 Form||W-2 Form|
|A form employees fill out in their first month of employment||A form employers fill out each year for their employees|
|Tells employers how much federal tax to withhold from their pay check||Reports what you paid your employees over the course of the year|
|Fill out one for each employer||Fill out one for each employee|
|One-time submission||Annual submission|