W-2 vs. W-4 Forms: What’s the Difference?

When you first begin the onboarding process, there are many different forms you need to complete—and as an HR professional, you’re no novice to paperwork. Still, sometimes these forms can be confusing, especially when they sound similar or seem to serve similar purposes, which is often the case when handling W-2s and W-4s.

The W-2 and W-4 are tax forms filed for all part-time and full-time employees, and both affect the first onboarding steps. Despite their comparable titles, however, these two new employee forms are different and need to be fully understood by HR and employees alike. Doing so makes tax season much less stressful and ensures that wages are being accurately handled. Here’s everything you need to know about a W-4 vs. a W-2.

What is a W-2 Form Used For?

The W-2 form, also known as the Wage and Tax Statement, reports an employee’s annual earnings and the amount of taxes withheld from their paychecks throughout the year. Some of the key uses and functions of a W-2 are:

• Reporting Earnings: The W-2 form provides a comprehensive summary of an employee's wages earned from a particular employer during a calendar year. It includes various types of compensation, such as salary, wages, tips, bonuses, and commissions.
• Withholding Information: The form also details the amount of federal income tax, state income tax, local income tax, Social Security tax, and Medicare tax withheld from an employee's earnings throughout the year. These withholdings are based on the information provided by the employee on their W-4 form (more on that below) and the relevant tax laws.
• Tax Filing: Employees use the W-2 form when filing their annual income tax return (Form 1040) with the IRS. The information on the W-2 form helps individuals accurately report their income and determine their tax liability for the year, serving as a vital supporting document for calculating income taxes owed or any potential tax refunds.
• Documentation: The W-2 form serves as a record of an individual's earnings and tax withholdings for a given tax year, meaning it also is a type of documentation that verifies the employee's income. Having verifiable income is required for various purposes such as obtaining loans, applying for government benefits, or providing proof of income during rental applications, and a W-2 can serve as proof.
• Compliance: Employers are legally obligated to provide their employees with a W-2 form by January 31st of the following year. They are also required to submit copies of the W-2 forms to the Social Security Administration and appropriate state and local tax authorities.

What is a W-4 Form Used For?

The W-4 form, also known as the Employee's Withholding Certificate, outlines employee information about their tax filing status, such as whether they are single, married, or have dependents, which helps employers calculate the appropriate amount of federal income tax to withhold from the employee's wages. Other uses of W-4s include the following:

• Personal Allowances: The W-4 form allows employees to claim allowances, which are used to adjust the amount of tax withheld from their pay. Each allowance reduces the amount of income subject to withholding, potentially reducing the overall tax burden. Employees can determine the number of allowances they are eligible to claim based on their marital status, dependents, and other relevant factors.
• Additional Withholding: Apart from allowances, employees can also request additional federal income tax withholding on their W-4 forms. This can be done if they anticipate owing additional taxes or want to ensure that enough tax is withheld to meet their tax obligations. The additional amount specified on the W-4 form is deducted from each paycheck to cover the extra tax liability.
• Life Changes: The W-4 form is also used to update withholding information when an employee experiences significant life changes, such as getting married, having a child, or experiencing a change in financial circumstances. By adjusting the withholding allowances, employees can ensure that the correct amount of tax is withheld from their wages.
• Compliance: W-4s are required forms when employees start a new job. It ensures that employers withhold the appropriate amount of federal income tax from the employee's wages following IRS regulations. 

Key elements and sections of a W-4

• Personal information: This section collects basic identifying details, including the employee's name, address, Social Security number, and filing status (single, married, or head of household).
• Multiple jobs or spouse works: If the employee holds multiple jobs simultaneously or if their spouse also works, this section helps adjust the withholding calculation to account for the additional income.
• Dependents: To qualify for certain tax benefits, this section allows employees to specify the number of qualifying dependents they have.
• Other adjustments: In this section, employees can make additional adjustments to their withholding if they have other sources of income, deductions, or credits they wish to consider when calculating their tax withholding.
• Deductions and additional income: If the employee expects to claim deductions other than the standard deduction or has additional income not subject to withholding (e.g., interest, dividends), this section allows them to provide estimated amounts to adjust their withholding accordingly.
• Signature and date: The employee must sign and date the form to certify that the information provided is accurate and complete.

Key Differences between W-2 and W-4 Forms

We’ve reviewed both the W-2 and W-4 forms, but let’s do a side-by-side comparison to highlight the differences.

Functionality and Usage

The W-2 form is completed by employers and provided to employees. It summarizes an employee's annual earnings and the amount of taxes withheld from their paychecks throughout the year. Employees use this form when filing their annual income tax returns. On the other hand, the W-4 form is completed by employees and submitted to their employers. It is used to determine the amount of federal income tax to be withheld from the employee's paycheck. 

Information Provided on Each Form

The W-2 is all about the employee providing information about the employee's earnings. It also includes details on tax withholdings and may potentially include other compensation or benefits received from the employer. The W-4 form accumulates information about the employee's filing status (e.g., single, married), the number of allowances claimed (based on dependents and deductions), and any additional withholding the employee wishes to request. Unlike the W-2. it does not include information on actual earnings or tax withholdings.

Influence on Taxes and Withholding:

The information on the W-2 form helps employees accurately report their income and determine their tax liability when filing their income tax return, reflecting the actual earnings and tax withholdings for the year. Those earnings are impacted by the information provided by the employees on the W-4 forms that they fill out during the onboarding process. 

This information is vital for employers to calculate the appropriate amount of federal income tax to withhold from the employee's wages, which may affect the employee's tax liability at the end of the year. Based on their needs and preferences, employees can adjust their tax withholdings based on personal allowances, additional withholding, and life changes on the W-4.

When Are They Completed?

W-2 forms are completed by employers, though the timeline looks a bit different from W-4 forms. Employers calculate and withhold taxes for each paycheck based on information from W-4s. Then, by January 31st, employers are required by law to provide their employees with their respective W-2s for the upcoming tax season.

Then we have W-4s, which are initially filled out by employees when they start a new job. These can be updated whenever the employee has a significant change in their life that would affect their withholdings, such as marriage, divorce, having a child, etc. They can also simply adjust their withholdings at any point.

Proper Filing of W-2 and W-4 Forms

Filling out the W-2 Form

1. Collect employee information: Gather any relevant employee information, including their name, address, social security number, and tax filing status (single, married, etc.).
2. Calculate earnings: Calculate the employee's total wages, tips, bonuses, commissions, and any other taxable compensation that your employee earned that year.
3. Determine tax withholdings: Review the payroll records and determine the amount of federal income tax, state income tax, local income tax, social security tax, and Medicare tax withheld from the employee's paychecks during the year.
4. Verify other compensation: If applicable, account for any additional compensation or benefits provided to the employee, such as retirement plan contributions or non-cash payments.
5. Complete the form: Fill out the W-2 form, providing the employee's information in the appropriate fields, including their withholdings.
6. Submit to employees: Provide the completed W-2 forms to the respective employees by January 31st of the following year, as required by the IRS.
7. File with SSA: File copies of the W-2 forms with the Social Security Administration (SSA) by their deadline.
8. Retain records: Keep copies of the completed W-2 forms on file according to retention guidelines provided by the IRS.

Filling out the W-4 Form

Here are some basic instructions you can provide employees to make sure you get the essentials.

1. Provide Personal Information: Fill in your name, address, social security number, and filing status (single, married, or head of household).
2. Determine Allowances: Calculate the number of allowances you are eligible to claim based on your marital status, dependents, and other applicable factors.
3. Consider Additional Withholding: If you anticipate owing additional taxes or wish to ensure extra withholding, you can enter an additional amount to be withheld from each paycheck in the "Additional Amount to be Withheld" section.
4. Sign and Date: Sign and date the W-4 form to certify that the information provided is accurate and complete.
5. Submit the Form: Submit the completed W-4 form to your employer.

Tips for Filing W-2 and W-4 Forms in the Onboarding Process

When you’re trying to determine how to onboard new employees, juggling these types of forms can be a little overwhelming. To help ensure that these forms are correctly managed by both the employer and employee, here are some ways HR can make the process easier.

• Educate Employees: Give clear and helpful instructions for employees during the onboarding process so they understand how and why to fill out their W-4 forms. Explain the purpose of each form and how they affect tax withholdings, and always emphasize the need for accurate and timely completion.
• Streamline Documentation: Create and implement a streamlined and efficient process for collecting, reviewing, and securely storing W-2 and W-4 forms. Electronic platforms or HR software are both great for document management and allow employees to complete and submit the forms online, reducing paperwork and ensuring easy access to the information.
• Stay Updated with Tax Regulations: Stay informed about changes in tax laws, regulations, and IRS guidelines related to W-2 and W-4 forms. This reduces internal confusion for both HR specialists and employees and ensures total compliance!
• Provide Resources and Support: Offer resources and assistance to employees who have questions or need help completing the W-2 and W-4 forms. Establish channels for employees to seek guidance from HR or payroll professionals, such as conducting training sessions or providing FAQs and instructional materials.

Frequently Asked Questions about W-2 and W-4 Forms

Do I need a W-2 if I have a W-4?

Yes, all employees need both a W-2 and a W-4 processed during onboarding—they are required IRS tax forms. 

How do you file a W-2?

Employers complete and file the W-2 forms of all of their employees by mailing or electronically sending them to the SSA. These must be filed by January 31st of each year.

Prioritizing Employee Wellness with W-2 and W-4 Forms

Completing both forms correctly for all employees is critical for managing employee earnings, navigating taxes, and complying with the law. This also helps guarantee that employees have everything they need at the start of their job and during tax season, which can make a big impact on employee wellness. 

Did you know that, according to Bamboo HR, employees that experience a smooth onboarding process feel up to 18 times more committed to their workplace? Correctly filling out these documents during the onboarding process is just one aspect of how to onboard successfully and can make the experience of new employees much easier.

Having a seamless tax experience and onboarding process only contributes to the mental and financial wellbeing of your employees. Talk with a Wellhub wellbeing specialist today about how you can go further to support employee wellness!

References

• Pugh, M.R. (2023, January 25). These 10+ Onboarding Statistics Reveal What New Employees Really Want in 2023. Bamboo HR. https://www.bamboohr.com/blog/onboarding-infographic