Every working professional comes across the W-4 and W-2 tax forms at some point. These two forms are critical IRS documents that ensure your taxes are reported accurately during tax season.
Let’s discuss these forms in-depth and understand how to fill them out and how they differ.
Understanding Form W-2
The W-2 document is the annual earnings report that employers assemble yearly for each worker. It consolidates gross earnings and deductions, such as retirement account contributions or Medicare taxes.
Who fills it out: Your employer
What it’s for: It is the summary of your total earnings and taxable compensation earned during the tax year, along with the federal income tax withheld by your employer.
How it works: W-2 is an authorized record used when you file your tax return. It clearly shows your earnings and tax withholdings for the year.
Generally, your employer should send a W-2 form to each employee to whom they have expended any pay or salary. This pay doesn’t include freelance employees. Your employer must distribute the W-2 by January 31st of the subsequent year. Your employer can utilize W-2 forms when reporting the Federal Insurance Contributions Act (FICA) taxes withheld.
Find Form W-2 here.
Understanding Form W-4
The W-4 form is also comprehended as the tax withholding instruction manual that notes the income tax to withhold from an employee’s salary or earnings. Every employee has to complete the W-4 before they get their first paycheck for a new job.
Who fills it out: You, the employee
What is the purpose of this form: The form W-4 serves as your guide for your employer, instructing them on how much federal income tax to withhold from your paycheck throughout the year.
How it works: The W-4 lets you claim allowances based on your circumstances, such as filing status (single, married, etc.) and the number of dependents you claim. Each allowance decreases the federal income tax withheld from your paycheck.
Find Form W-4 here.
W-2 vs. W-4: What They Are and Why They Matter
The major distinction between the forms W-2 and W-4 is who files them. As we know, the employer files W-2, and the employee files W-4 at the time of new job acceptance or anything that affects the withholding allowances.
The W-2 is basically the annual earning document that records the employee’s compensation in the form of salary, bonus, or Medicare taxes, whereas the W-4 reveals the employee’s identity information, marital status, dependents, and withheld taxes.
| Feature | W-2 (Wage and Tax Statement) | W-4 (Employee’s Withholding Certificate) |
|---|---|---|
| Who fills it out? | Employer | Employee |
| Purpose | Used to document annual source of income and federal income tax withheld | Used to calculate how much federal income tax to withhold from paycheck |
| When to Use | Generally, distributed by the employer by January 31st of the following year via mail or personally | Completed upon starting a new job or when tax withholding needs to change (filing status, dependents) |
| Filing Process | The employer sends a copy of the form by mail to the employee | Submitted by employee to employer’s HR department |
| Impact on Paycheck | No direct impact | Defines federal income tax withheld from every monthly paycheck |
| Used for Tax Return | Yes, important document for filing your tax return | No, not filed by any govt. agency |
Also Read: Everything You Need to Know About IRS Form 1040 Schedule 2
Frequently Asked Questions
When should I receive the W-2 form?
You might receive the form W-2 on your payroll portal or via mail by January 31st from your employer.
What information should I include on W-2?
The W-2 form covers points like gross earnings and bonuses, taxable wages, federal tax withheld, Social Security and Medicare taxes withheld, and other pre-tax deductions.
Do I need to file my W-2 with my tax return?
No, you don’t file the W-2 itself. However, you’ll use the details mentioned on the W-2 to document your income and taxes withheld on your tax return.
When do I need to fill out a W-4?
Typically, you need to report W-4 when your earnings change, such as when you change jobs or get married—basically anything that impacts your tax withholding.
What happens in case I claim too few allowances on my Form W-4?
If you claim too few allowances on the W-4 form, more tax will be withheld from each paycheck, leading to a tax refund at the end of the year. However, you might also owe penalties if the amount withheld throughout the year falls short of your tax liability.
What can happen if I claim too many allowances on my Form W-4?
This implies that less tax will be withheld from each paycheck. While your take-home pay increases, you might owe a significant tax bill come filing season, potentially with underpayment penalties.
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