Form W2 and Form W4 are two of the most important IRS documents that you will need for your business and employees. Both of these forms are required by the IRS during the taxation process. However, there are some significant differences between W2 vs W4 forms.
Employers use Form W4 to determine the amount of tax that should be withheld from the employees’ paychecks. On the other hand, an employer generates Form W2 to report the employee’s earnings and tax withholdings for the accounting year.
This detailed guide about W2 vs W4 will help you learn the differences between Forms W2 and Form W4, along with the right procedure for filling out these forms.
Fundamentals of W2 vs W4
You need to be familiar with the basics of W2 vs W4 before we break down the differences between these IRS forms.
You can easily find the forms W2 and W4 on the official website of the IRS. Employers must fill out the forms for each of their employees. Generally, this process is considered an essential part of the HR and payroll management of a business.
Let’s understand the basics of these IRS forms:
What is Form W2?
IRS refers to the wage and tax statement as Form W2. Employers file the W2 forms annually for every employee. W2 forms give information about the employees’ total earnings, along with deductions for income, charges for social security, Medicare taxes, and retirement savings.
Employees have to submit W2 forms to file their annual personal tax returns. They can file the forms online or complete the forms manually and mail them to Social Security Administration (SSA), along with state and local governments.
Completing the W2 forms is typically more challenging than W4 forms. As a result, many people prefer modern payroll or accounting software to get help in filing Form W2.
What is Form W4?
The employee’s withholding allowance certificate is simply called the IRS Form W4. This form represents the federal income tax that employers withhold from the income of their employees. Every employee must follow the official rules and regulations to complete Form W4 on the first day of employment or at least before their first paycheck.
Once the employers get the W4 from their employees, they use the provided information to evaluate payroll and withhold a suitable amount of federal tax before paying the employees.
W2 vs W4: Differences
Now that you are familiar with the basics of IRS Form W2 and W4, you can understand the major differences between these two important forms as well. Let’s breakdown these differences one by one:
Form W4 is essential for employers to determine the amount that should be withheld from each employee’s salary and submitted to the IRS for tax purposes. The amount withheld is dependent on various factors like the employee’s marital status, dependents, and other withholding preferences.
On the contrary, Form W2 is an annual report that provides information about the earnings of the employees, including gross pay, bonuses, federal tax income, and other taxes. W2 is more comprehensive than W4 as it contains a lot of details about the employees, including information about the additional withholdings.
Completing the Forms
Employees fill out the W4 within the first month of their jobs. All of the personal information and details about withholding allowances will be filled out by the employees, and the employers only have to fill out some part of the form.
On the other hand, employers are responsible for completing Form W2 according to the payroll data of the accounting year. Employers have to submit a W2 for each employee. Moreover, employers also have to provide a copy of Form W2 to their employees by 31st January.
Time of Submission
W4 is essential to determine the amount of tax that has to be withheld from the employee’s paycheck. As a result, employers should collect the W4 forms from their employees before the first payday. Once the W4 is completed, an employee will only have to modify the form if there are any changes in their financial situation.
W2 is quite different from W4 because it is an annual report representing the data of the previous financial year. Employers have to complete the W2 forms and submit them to the IRS by 31st January.
W2 vs W4: How to Fill Out Forms?
It is important to keep a few things in mind to make sure you comply with the W2 and W4 requirements for your company. Let’s look at the most important things in these IRS forms.
Employers should encourage their employees to complete Form W4 as soon as possible. The employees must provide the following information in W4:
- Full name
- Marital Status
- Number of dependents, if any
- Additional income and deductions
Employers should share the official W4 form with their employees to obtain information from the entire staff consistently and efficiently.
Unlike Form W4, an employer is fully responsible for completing and submitting the W2 forms. You can submit this form online or mail it to the SSA. The important information that you have to include in W2 is:
- Employee’s SSN
- Employer Identification Number
- Both employer and employee name and address
- Detailed information about the wages and tax withholdings of the employees
Tips to Manage W2 and W4 Forms
Both W2 and W4 forms are important for the smooth functioning of businesses and employees. Following are some important tips that you should follow to streamline the process of completing the W2 and W4 forms:
Comply with the Deadlines
You have to follow certain deadlines when dealing with W2 and W4 forms to make sure you do not run into any compliance or legal issues. Therefore, you should be proactive while managing the IRS forms and complete the W2 and W4 forms as soon as possible.
Contact a Professional
Small businesses can often face issues in completing and filing W2 and W4 forms, especially if the owners are not familiar with the best practices of managing these forms. You should consider contacting a professional accountant or tax advisor who can help you fill the IRS tax forms in such a situation.
IRS recommends employers file the W2 form online because it saves a significant amount of time. Similarly, you should ask your employees to file the W4 electronically. However, keep in mind that a major difference between W2 vs W4 is that you do not have to file W4 with the federal government. Employers only have to keep the W4 in their internal databases.
Payroll Management Software
A wide range of payroll and HR software can make it easier for companies to complete W2 and W4 forms. You should consider using an efficient payroll management system to streamline the tax form processes and get through the entire procedure quickly and easily.
Despite having some similarities, the bottom line is that Form W2 and Form W4 are different from each other in many ways. Both W2 and W4 are IRS tax forms, but W4 is used to obtain employee information, while employers have to submit Form W2 to the IRS to file the employee’s taxes.
Employers need to be familiar with the various aspects of W2 vs W4 forms discussed in this article. It will help you to complete the forms correctly and submit them within a suitable time frame.