Whether you’re a business owner or an employee, tax forms are an inescapable part of your job. Between the numerous consonants and hyphens, it’s easy to get lost in the IRS’ alphabet soup. Two related documents, Forms W-4 and W-2, are subject to confusion because their names are so similar. They are both related to an employee’s tax situation, but serve different functions.
Since it’s relatively easy to mix the two up, we’re going to take a look at how they differ, what purposes they serve, and when both employers and employees should think about them.
About the W-4
The W-4 is a tax form used to calculate the correct amount of federal income tax that should be withheld from an employee’s pay. An employee must consider factors like his or her family situation (i.e. number of children, marital status, etc.), home ownership (i.e. buying or selling a house), saving contributions (i.e. college, retirement, etc.), number of dependents and even employment status. This form is required for all employees except those that earn less than $800 per year.
This form must be completed whenever an employee starts a new job. An employee can also update his or her W-4 at any time based on changes in his or her personal or financial situation. As an employer, you are under no obligation to request updates. If a new hire is unsure about how much pay to withhold, he or she can use the IRS’ Online Withholding Calculator for assistance.
About the W-2
The W-2 is a tax form that employers give to their employees at the end of each year. This form includes the total amounts of wages earned, federal and state taxes withheld, and contributions to Social Security for a given tax year. After receiving it from his or her employer, the employee must submit this information when paying taxes in April with their Form 1040.
Employers are required to provide their employees with this information by January 31 of each year and submit a copy to the Social Security Administration (SSA) by February 29. A copy must also be kept on record for a minimum of four years. An additional three copies are furnished to employees for their personal records and tax filings.
The SSA has made recent efforts to increase efficiency and decrease waste by allowing for electronic filing. If you chose to file this way, the deadline for 2018 is extended to April 2. Employers can use the Business Services Online suite of the Social Security Administration site for more information on electronic W-2 submissions.
A more in-depth guide to filing W-2s can be found at the IRS website.