Generally, the difference between IRS forms W2 and W4 only lies in the fact that different entities fill them out. Though the main purpose is about the taxes to be withheld, form W 4 is needed to be filled out by employees on their new job in order for employers to know how much tax should be withheld on the employee’s paycheck. On the other hand, employers need to file form W 2 at the end of each year to indicate how much tax was withheld.
W 2 vs W 4 Difference
Who Fills Each Out
Form W 4 – A W 4 form is a requirement and is needed to be filled out by an employee that is new to the job. In 2020, the Internal Revenue Service made changes to Tax Form W 4 to increase transparency and accuracy of the payroll system.
On a good note, there’s no reason for employees fill out new forms if they haven’t changed jobs.
Form W 2 – On the other hand, a W 2 form is filled out by employers.
Form W 4 – W 4 forms, or the Employee’s Withholding Allowance Certificate, are needed by the employers to know how much income taxes should be withheld from each employee’s paychecks. A complete W 4 form tells your employer the correct amount of federal income tax to be withheld from one’s pay.
The income tax calculation would depend based on one’s current financial situation such as marital status, personal withholding preferences, and the number of dependents. Thus, it is advisable for an employee to complete W 4 forms every year or whenever one’s financial status changes.
Failure to submit a Form W 4, or even having incorrect information, would lead to having you either paying too much or less tax.
Form W 2 – A Form W 2, or the Wage and Tax statement, is one of the IRS tax forms that serve as a year end tax document on an employee’s earnings for the whole year. This would include an employee’s gross pay, annual wages, social security and Medicare taxes, and the amount of taxes withheld from their paychecks.
Apart from having this information submitted to the government, the employer is also required to send this document to both the IRS and their respective employees.
When to Fill Out and Submit
Form W 4 – W 4 forms should be filled out by an employee upon starting a new job. On a special note, as what has been stated above, employees are advised to fill out and submit new W 4 forms whenever their financial situations change.
Form W 2 – W 2 forms are legally required to be sent out to the employees on or before the deadline on the 31st of January. This would give employees enough time to file their income taxes for the tax year, which usually falls on the 15th of April.
Meanwhile, if the 31st of January falls on a legal holiday, or on a Saturday or Sunday, then the deadline is moved to the next business day.
Understanding the Forms
Form W 4
- The 1st step of filling out a W 4 form requires your typical personal information (full name, employee’s social security number, address) and marital status. If married, it is important to take note of whether you’ll be filing jointly with your spouse or separately.
- The 2nd step is for employees with an additional source of income. E.g. work of spouse, freelance income, second job.
- Step 3 indicates the number of dependents you have (number of children, other dependents).
- Step 4 is optional wherein you can indicate other sources of income aside from your jobs. Good examples are passive income from investing in stocks or forex.
- 5th and final step is your signature.
Form W 2
Form W 2 contains all the basic information of an employee in addition to the following boxes:
- Shows all of your taxable income.
- Shows how much federal income tax your employer has withheld.
- How much of the employee’s earned income is subject to social security tax.
- Amount of social security tax withheld.
- How much of earnings is subject to Medicare tax.
- The amount that was withheld for Medicare tax.
- If your pay is partly from your tips, then this box shows how much you indicated in tips.
- How much your employer reported in tips allocated to you.
- Previously a tax perk, this has been removed.
- How much you received for dependent care benefits.
- Deferred compensation received from employer in a non-qualified plan.
- Other compensation or reductions from your taxable income. Codes are detailed in the instructions provided in the IRS’ W 2 instructions.
- Any pay corresponding to the choices that are not subject to federal income tax withholding.
- Any other tax withholding information that the employer can report that does not fit into the other sections of the form.
- Boxes 15-20 are all about state and local taxes, also pertaining as to how much income tax should be withheld.