Form W2 vs W4: Key Differences and How to File Each Form

Understanding tax forms can be rather difficult, especially with similar-sounding paperwork like Form W-2 and Form W-4. Both types of IRS tax forms play significant roles in managing income tax responsibilities. However, Form W-4 vs W-2 serves distinct goals. 

In this extensive explanation, we’ll clarify the variations between the form w-4 and W-2, explaining how they affect your paycheck and tax return. Additionally, we will explain critical methods for submitting each form properly.

Understanding The W-4 Form (Employee’s Withholding Certificate )

Form W-4, also known as the Employee’s Withholding Certificate, is supplied by the employer after an employee has accepted a job offer from the company official. New hires must complete and submit this form before receiving their first salary. Apart from them, current employees with life and work changes that may impact their taxes, such as marriage, divorce, a new baby, or allowances, and having more than one job, must also file a new form W-4.

Using the data on the W-4 form, businesses decide how much federal, state, and local taxes to withhold from the employee’s payment. In addition, they should preserve a copy of the signature Form W-4 in case the Internal Revenue Service requires it.

If newly recruited workers fail to file Form W-4 before their first payment, the employer should handle payroll as if they had selected a single civil status with zero children or dependents. Business officials may also use their employees’ Form W-4 from the prior year as the foundation for determining how much tax to withhold. Also, if the caseworkers anticipate their salaries to result in zero tax burden, they might claim Form W-4 exemption.

When To Update a W-4 Form?

It’s important to understand when to update or review your W-4 form, as various life situations could impact your tax position. Events such as having a new baby or establishing a side profession may alter your tax liability. By changing your W-4, you may ensure that the proper amount of tax is taken from your paycheck throughout the year. This proactive method helps avoid any surprises when you file your taxes at the end of the year.

Understanding The Form W-2 (IRS Wage & Tax Statement)

The W-2 form is short for IRS Form W-2 (Wage and Tax Statement), and it is submitted with the Internal Revenue Service by your present employer. Any firm with workers is required to submit a W-2 for each employee who was paid at least $600 for the current tax year. A copy of the W-2 is supplied to the employee for your records. You may get it via postal service mail or by email. Employers must submit it by January 31 of the year after the tax year. 

The W-2 notifies the Internal Revenue Service of the entire amount earned in wages, tips, and other compensation for the selected tax year. It also notifies the Internal Revenue Service about your payments toward Social Security and Medicare taxes.

The Primary Sections of the W-2 (IRS Wage & Tax Statement) are:

1. Employer identifying information
2. Wages, tips, and other compensation
3. Social Security and Medicare payroll taxes paid
4. Amount of federal tax paid
5. State income tax paid
6. Local income tax paid
7. Retirement contributions paid

When you or your taxation accountant fill out form, those figures are transferred to your taxation return.

The Importance of a W-2 (IRS Wage & Tax Statement)

A W-2 is necessary for submitting your tax return since it offers a summary of your income and the taxes kept during the year. Accurate information on your W-2 helps guarantee that the taxes you’ve paid compliance with what you owe. If inconsistencies arise, it may result in a tax refund or a debt that you may need to pay. Thus, possessing a W-2 is important for correct tax filing and financial planning.

What’s The Differences Between W-4 vs W-2 Form

Here is a table of comparison to understand the difference between a W-2 and W-4 form: