W-2 vs. W-4: A Complete Guide for Businesses on Tax Forms and Withholding
December 12, 2022
peakreliance
Accounting, Bookkeeping, Taxes
As a business owner, hiring employees is an exciting milestone that can help your company continue to grow and thrive. But while hiring top talent is a great achievement, the paperwork that comes with it is less enjoyable. When you bring on full-time or part-time employees, you’ll need to file W-2 and W-4 tax forms. If you’re not sure how to differentiate between the two or how to file them, our tax guide has you covered. We’ll help you understand the differences between W-2 and W-4 forms and provide step-by-step instructions for filing them accurately and on time.
The Difference Between W-2 & W-4
The main difference between W-2 and W-4 forms is who fills them out and how they are used. W-4 forms are completed by employees when they start a new job and are used by their employer to process payroll and calculate withholdings. W-2 forms, on the other hand, are completed by employers after the end of the year and contain a record of the employee’s wages, withholding, and other deductions. Employees receive a copy of their W-2 by January 31st of the following year, and employers are required to file a copy with the IRS. It’s important for both employees and employers to understand the differences between these two forms and to complete and file them accurately and on time.
What’s a W-4 form?
Form W-4, also known as the Employee Withholding Certificate, is used to collect information needed to calculate how much income tax to withhold from each employee’s paycheck. To complete the form, employees need to provide basic identifying information such as their name, address, social security number, marital status, and number of dependents. They submit the form to their employer, who is responsible for keeping records of it. The IRS does not receive a copy of the W-4. Employees are responsible for updating their W-4 if they have a life-changing event that affects their withholding. They should also review it periodically to ensure it is up-to-date. Employers must have a W-4 on file to process payroll for their employees.
How to Get and Use the W-4 Form
To obtain a copy of the federal W-4 form, you can visit the IRS website or contact your payroll provider. Many payroll providers will provide a copy of the form when you start using their software. Keep in mind that the IRS periodically updates the form, so make sure you are using the most recent version. When hiring new employees, be sure to provide them with a copy of the form and ask them to complete it before the next payroll processing date. You should also request that your current employees fill out the form if you do not have one on file for them. Completed W-4 forms should be kept in the employee’s payroll file for reference
State Withholding Tax
While some states use the federal W-4 form to calculate state tax withholding, others have their own separate forms that employees must complete. If you have employees in multiple states, they will need to fill out the appropriate withholding form for their state of residence. In addition, you must register with each state’s taxing authority and remit state payroll tax payments according to the state’s rules. If you work with a payroll processor, they should handle the registration and payment process on your behalf.
What’s a W-2 Form?
Form W-2, also known as the Wage and Tax Statement, is completed by the employer and provided to employees after the end of the year. It contains basic identifying information such as the employee’s name, address, and social security number. Employers must send W-2s by January 31st of the following year, and there are steep fines for missing the filing deadline. It is essential that your business file the forms accurately and on time.
The W-2 contains basic identifying information such as name, address, and social security number.
Form W-2 contains several important boxes with information that employees will use to complete their individual tax returns. The most important boxes for your employees are:
1 (Wages, tips, and other compensation) – total amount paid to the employee during the year
2 (Federal income tax withheld) – amount of federal income tax withheld by the employer
3 (Social security wages) – total wages subject to Social Security tax
4 (Social security tax withheld) – employee wages withheld for Social Security tax
5 (Medicare wages and tips) – total wages subject to Medicare tax
6 (Medicare taxes withheld) – amount withheld for Medicare taxes
17 (State income tax) – amount withheld for state income taxes, which may be blank if you are in a state that does not collect state income tax
Businesses are required to file W-2s by January 31st each year, but they can file an amended W-2 form if an error is identified. There is no deadline for filing an amended W-2. The IRS uses the information on W-2s to verify that employees have claimed all of their wages on their individual income tax returns.
To fill out a W-2 form, follow these steps:
- Gather all necessary information, including the employee’s name, Social Security number, address, and income information.
- Make six copies of the W-2 form, labeled as follows:
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- Copy A: sent to the Social Security Administration
- Copy 1: sent to city, state, or local tax departments
- Copies B, C, and 2: given to your employee
- Copy D: kept for your records
- Fill out each copy of the form with the required information.
- File the forms electronically if possible. Employees can opt-in to electronic delivery of their W-2 forms.
- Keep a copy of the forms for your records, and give copies to your employees as specified.
It is important to accurately and completely fill out the W-2 forms to ensure that employees receive the correct amount of tax withholding, and to avoid penalties from the IRS.
To complete the employer information section of a W-2 form:
- In boxes b, c, and d, report the name and address of your business, as well as your employer identification number (EIN).
To complete the employee information section of a W-2 form:
- In boxes a, e, and f, fill in the employee’s name, address, and Social Security number. This information will be used to mail the form to the employee if you send physical copies, and to identify the employee for tax purposes.
To report wages and withholdings on a W-2 form:
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Use boxes 1-14 to report the employee’s gross pay for the tax year and the amount withheld for taxes. This should include all types of withholdings, such as federal, state, and local taxes, as well as Social Security and Medicare.
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These boxes also contain information about adjustments to the employee’s wages, such as deductions for life insurance, health insurance, and retirement plan contributions.
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Box 14 contains miscellaneous information, such as union dues and tuition assistance.
To report state and local information on a W-2 form:
- Use boxes 15-20 to report any state and local withholding information. These boxes may also contain information about local taxes and other withholdings. Note that very few localities have separate withholdings.
Ensuring that your business is tax-compliant can be a challenging task, but it is essential for the success and growth of your company. One important step is to have accurate W-4 forms on file for all of your employees, as this will help you calculate their tax withholding correctly. Additionally, it would help if you made sure to submit accurate W-2 forms to the appropriate authorities before the end of January.
Don’t let taxes and payroll stress you out. Contact our team of experts at Peak Reliance for help with your business’s W-2 and W-4 forms. Call us at +1 (718) 218-5558 or email us at [email protected] to get started.
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