W-2 vs. W-4 Forms: Differences You Should Know

If you’re managing payroll or starting a new job, you’ll almost certainly come across two main IRS documents: the W-2 form and the W-4 form. At first glance, they might seem similar. Both relate to employment and taxes, but they serve different purposes in the payroll process.

Understanding the difference between W-2 and W-4 forms is a necessity for accurate tax filing and smooth payroll. Let's explore the purpose of each form, along with who is responsible for handling them. By the end, you’ll know when to use the W-2 or W-4 form and how to manage each confidently.

What is a W-2 Form?

A W-2 form is an annual wage and tax statement that employers send to employees and the IRS. Here's a rundown about this form:

• Employers issue the W-2 form at the end of the tax year.

• It shows the employee's total wages earned during the year.

• The form includes federal, state, and other tax withholdings from each paycheck.

• Employees use it to file annual income tax returns.

Employers are required to send the W-2 forms by January 31, so that employees can file their taxes on time.

What is a W-4 Form?

The W-4 form is officially called the Employee’s Withholding Certificate. Here are the foundational points about the form:

• Employees fill it out when they start a new job.

• The form tells the employer how much federal income tax to withhold from each paycheck.

• Employees should update it if their personal or financial situations change.

By keeping their W-4 form up to date, employees can better align tax withholding with their tax liability. This reduces the risk of owing a large amount at tax filing time or receiving an inaccurate refund.

What's the Main Difference Between W-2 and W-4 Forms?

While both forms relate to payroll and taxes, they serve distinct roles. The W-2 form provides a record of what has already happened: the earnings and tax withholdings for the year. The W-4 determines how much payroll tax vs. income tax to withhold from future paychecks. Here's an easy W-4 form vs W-2 form breakdown:

W-2 Form

• Purpose: To report an employee’s total annual wages and taxes withheld.

• Timing: Issued by the employer at the end of the tax year. Who Completes it: The employer prepares and sends it to both the employee and the IRS.

• When it’s Used: Employees use it when filing annual tax returns.

• Tax Purpose: It reports the employees' earnings and taxes withheld.

W-4 Form

• Purpose: To instruct the employer on how much federal income tax to withhold from each paycheck.

• Timing: Completed by the employee at the beginning of a new job or when withholding needs to change.

• Who Completes it: Employees fill it out and submit it to the employer.

• When It’s Used: The employer references it throughout the year to calculate paycheck withholdings.

• Tax Purpose: Used whenever an employee wants to adjust tax withholding.

Common Mistakes in Filling Out W-2 or W-4 Forms

Even small mistakes on payroll forms can cause delays and additional work later. Some of the most common issues with W-2 or W-4 forms include:

• Incorrect Wage Totals or Social Security Numbers on the W-2

  These errors can delay tax filing for your employees. In many cases, you need to send amended forms to the IRS and the employee.

• Outdated Personal Information on the W-4

  An old address or an incorrect filing status can result in wrong withholding amounts.

• Not Updating the W-4 After Major Life Events

  Changes such as marriage, divorce, childbirth, or taking on a second job can all affect the amount of tax that the employer should withhold.

To prevent these types of issues, employees and employers are encouraged to review each form carefully before submission. They should make or request updates whenever their personal or financial situation changes. A quick check during onboarding or year-end filing can save both employers and employees unnecessary hassle.

Managing Forms for Accurate Payroll with Justworks

Understanding the difference between W-2 and W-4 forms helps you keep payroll running smoothly and tax filings accurate. You can simplify payments and year-end tax statements using a centralized platform, with Justworks Payroll ensuring seamless compliance. Get started with Justworks today.