When employees receive their paychecks, the employer is required to withhold money from them in order to pay income tax. The amounts, how much was earned and how much was withheld, is also supposed to be reported, as per the protocols of the Internal Revenue System (IRS). IRS forms W-2 and W-4 help employees in this regard. Form W-2 is related to the filing of your taxes, while form W-4 is related to the income tax withholding. A W-2 vs. W-4 tax form comparison is outlined in the paragraphs to follow.
- By definition, it is the form sent by the employer to the IRS and his employee when the year ends.
- It contains the employee's yearly pay and the tax amount withheld from the paycheck.
- The form must be filled and sent before the target date expires (the deadline is set by the IRS; usually, it is January 31).
- You need to fill out information, like the amount from your salary that is subject to Social Security taxes, Medicare tax, etc.
- Tax withholding is very important, as the amounts that are withheld from your paycheck are remitted to the IRS. This withholding amount is subtracted from the final tax bill that you submit to the IRS.
- The information you enter in the form must be completely true as the IRS verifies the same from your employer. If any entry is found to be inaccurate, you will be in legal trouble.
- This form is supposed to be filled by the employee before he starts working for the company.
- It reports the employee allowances, deductions, and eligible tax credits.
- Every claimed allowance will reduce the amount withheld on the paycheck.
- Line 5 of the W-4 form contains all the allowances you can claim for. Read them carefully and claim for the ones you require.
- This form is very important as this is what will help your employer withhold the right amount of income tax from the paycheck.
- In short, this form helps you decide how many federal and state withholdings to take out of the paycheck.
- This form needs to be filled every time you start a new job, and also if any major changes have taken place in your life (marriage, divorce, children, etc.).
◼ Its purpose is to report how much money is withheld for taxes and how much money is subject to taxes.
◼ Its purpose is to help determine the number of claimed allowances and the employee's tax liability.
◼ Federal income tax, social security tax, social security wages, Medicare tax, allocated tips, employee ID, employer ID, etc.
◼ Name, address, withholdings, deductions, and allowances - for dependents, single income, child tax credit, etc.
◼ It has to be filled once every year, mostly at the end of the year, after the tax period for that year is over. The date is usually January 31, assuming that the tax period ended on December 31.
◼ It has to be filled many times, depending on each individual. It is a form that needs to be periodically updated; hence, every time there is a major event in your life that may affect your tax liabilities, you are supposed to fill this form.
◼ It is the employer who is responsible for giving you the form, with the details of your income and how much of it was subject to taxes.
◼ The employee is totally responsible for completing this form and submitting the same to the employer, with details of how many deductions he wants to be taken out of the income.
◼ Multiple copies of this form are submitted to the employee, the IRS, as well as the state.
◼ A copy is submitted to the employer. In rare cases, a copy may be submitted to the IRS as well.
The W-2 and W-4 forms apply only to employees, and not to those working as independent contractors. If you are a minor entrepreneur, make sure you know when and how to complete these forms and submit them in accordance with the IRS guidelines.