Opening your new business needs more than just hiring employees and selling your products. You’ll need to think about all the legal requirements of a small business. A couple of these requirements are the W-2 and W-4 forms asked by the IRS.

These forms may seem alike but they have some main differences. For instance, W-4 forms are filled out by employees. Meanwhile, W-2 forms are filled out by the employers to confirm annually withheld tax from employees.

Stick around to gain more knowledge about W2 vs. W4 forms’ differences, uses, and why they’re critical for any business.

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The W-2 form is formally known as the IRS Form W-2 Wage and Tax Statement. Think of this form as a year-long summary of an employee’s income information. It can include sections highlighting the employer’s identifying information, gross pay, tips, and bonuses as well.

Most importantly, it holds the employee’s deduction data such as federal, income, and state taxes, retirement, savings, and childcare costs.

This form needs to be given to their respective employees by January 31st each year. The W-2 form is valid for employees that get paid at least $600 or more.

What is a W-2 Form?

The W-4 form, otherwise known as the Employee’s Withholding Certificate, is given to the employees during their first stages of employment. This form details the amount of tax deductions employees will have in their income.

The W-4 form bases the tax deduction amount on several variables such as which state you reside in and marital status.

Filling out the form advises your employer on if they should deduct taxes at a higher or lower rate. That could depend on whether you're single or married, respectively.

It also lets your employer find out about the number of withholding allowances the employee has, and if there are any exemptions to consider. Keep in mind that the form can be re-filed if there are changes in financial and withholding conditions.

What is a W-4 Form?

You got the files and aren’t sure what to do with them. Well, both have their own steps. Once an employee completes their W-4 forms, the employer doesn’t have to give it to the IRS or Social Security.

You’ll want to either file it electronically or physically with the rest of your records. Filing them is crucial if you’re trying to uphold state new-hire reporting standards.

With regards to a W-2 form, filing them with Social Security is a must. Apart from that, you’ll also have to give them to your employees before January 31st. They’ll need it to file their annual tax return.

In addition, you might also need to submit them to your local or state tax department. 

W-2 vs. W-4 Forms: What You Should Do with Them

When it comes to their differences, W-2 and W-4 forms can be distinguished by who files them, their timings, and more.

W-4 forms are filled out by employees for employers. On the other hand, W-2 forms are filled out by employers for employees.

Plus, in any business system, W-4 forms are usually filled out first since they come during the first stages of employment. W-2 forms are filed during a year’s worth of employment by the employer.

Another major difference between the two forms is the purpose of each one. W-2 forms are used by employers to report yearly employee income information, including:

A W-4 form’s main purpose is to share the amount that needs to be taken from an employee’s earnings and given to the IRS.

The employer extracts this form and analyses the factors that need to be taken into consideration when deducting the amount. These can encompass the number of dependents and withholding preferences.

The Difference Between W-2 and W-4 Forms

Employers are fully responsible for submitting W-2 forms. They can be found on the IRS website. Having said that, the form will require an employer to fill in each employee’s Social Security number since it’ll be given to the Social Security Administration (SSA).

Additionally, employers need to also fill in their business’ Employer Identification Number (EIN), name, ZIP code, address, and the employee’s personal data.

If you’re an employer, try to keep in mind that each W-2 form will probably carry different withholding, tax reductions, allowances, or retirement plans. This is why you might want to consult professional help from a tax advisor or business accountant.

How to File W-2 Forms

As an employee, filling out a W-4 form is usually simple. This government document will require you to enter details of your:

If you’re an employee, you need to make sure to file the W-4 form before getting your first paycheck.

You can find the W-4 form on the IRS website in English and Spanish. The form will ask for the number of allowances needed. The allowances can be determined by whether you have a child or an additional job.

If you want to increase your withholding amount, then be sure to add information such as having other jobs that don’t have withholdings. Along with the W-4 form, employees might also have to state withholding forms.

That being said, employers are not allowed to fill in the information for employees, but they can assist them by providing IRS-sourced instructions. 

How to File W-4 Forms

When looking at W-2 vs. W-4 forms, you’ll notice that their differences mainly lie in their purpose, who files them, and when they should be filed.

W-2 forms are needed for annual employee tax withholding information and are filed each year by employers. W-4 forms are part of an employee's initial document requirements during the hiring process. They need to be filled out after being given a job offer.

These forms are critical because neglecting them could potentially lead to penalties from the IRS. We highly recommend considering a payroll or HR software to help you file these forms.

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