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W-2 and W-4: A Simple Breakdown

By Amanda Smith on January 23, 2019

Form W-2 is a year-end tax form that employers fill out to report the total wages they paid their employees. It’s often confused with Form W-4 (which is for employees to fill out once, at the start of their employment).

W-2 vs W-4 cheat sheet

Here’s some simple shorthand for thinking about W-2 and W-4 forms. 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.

W-2 Form W-4 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

How to use W-2 tax forms

Who fills it out: The employer

Who it’s for: The employee, and the IRS

IRS Form W-2

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 the total deductions made for things like taxes, childcare, retirement or savings.

Every one of your employees gets a W-2 (usually by mail) at the end of the year. As an employer you’ll also submit an electronic copy directly to the IRS—usually by January 31 for the previous year.

How to use W-4 tax forms

Who fills it out: The employee

Who it’s for: The employer

IRS Form W-4

Every employee needs to complete a W-4 form in the first month of their employment with you. It tells you exactly how much money you should withhold from their paycheck for the IRS. We all have different financial plans—some employees might set aside a conservative amount of tax to ensure they don’t owe any at the end of the year (and get a 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.

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 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.

State-specific forms

While some states also use W-4 forms for state-specific taxes, others don’t. You’ll need to ensure your employees fill out forms for both federal withholdings and state withholdings. Find out what form you need, by state.

Do 1099 employees get a W-2?

Nope. Your contractors aren’t eligible for a W-2 form. Instead, you’ll complete a 1099-MISC form for them at the end of the year. The 1099-MISC isn’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. The IRS website has a full list of anyone who might need to receive a 1099-MISC.

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.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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