Understanding all the forms used by the IRS and employers can be confusing and little like reading from a bowl of kids’ alphabet soup.
There’s 1040, 1040EZ, 1040, 1098, 1099, W-4, W-2 and the list goes on and on. Now, if you’re an IRS encyclopedia or a tax specialist, it might seem like no big deal to keep track of all these forms, numbers, and letters.
Yet, for the average employee, it can be downright confusing. Most employees come in contact with the W-4 and the W-2 forms.
Read on to understand the W-4 vs W-2 forms and their uses.
The W-4 form is one filled out by employees for their employers. It helps employers to know exactly what taxes they should remove from your paycheck.
Based on how you fill out the form, it helps your employers to know what the appropriate amount of federal income tax should be removed.
The W-4 form, which the IRS officially names the Employee’s Withholding Allowance Certificate, includes some personal information for employers. You will include your full name, which is the name you file your taxes under.
You will also include your social security number and full address. You have to indicate whether you are single, married, or married but filing a separate tax return from your spouse.
You will need to indicate how many allowances you want to be considered. Allowances factor in your dependents. If you have three children, for example, you might claim three dependents as allowances.
You can also claim allowances for other things like personal deductions or having more than one job.
You can also request that your employer remove additional monies from your paycheck. This might be because you have a second job and want to pay more taxes to avoid having to pay later.
A spouse might also have a job where withholding is not occurring. So, the spouse getting withholding might increase theirs to offset the one who doesn’t have taxes removed.
If an employee is eligible for an income tax credit for things like child care costs, then they could also opt to lower the amount they pay in taxes.
The W-2 form is another IRS form. Its full name is the Wage and Tax Statement. Unlike the W-4 form completed by the employee, the W-2 form is completed by the employer.
Employers are required each to provide a W-2 form for their employees by January 31st for the previous year’s earnings.
The W-2 form is given to employees and a duplicate copy is provided to the IRS by the employer. Then when you complete your taxes, you use the information from the W-2 and provide a copy with your filed taxes.
The W-2 is required to have information about the money that was withheld from pay by your employer.
There are a series of lettered and numbered boxes on the W-2 form that employers must complete. Let’s take a closer look at the information included on the W-2 statement.
Boxes A Through F
These lettered boxes contain your name, address, and social security number. They also include the name of your employer and the tax identification numbers.
Boxes 1 and 2
Box 1 shows an employee’s total wages from salary, tips, and bonuses. Then box 2 shows the total amount of withholding from those wages.
Boxes 3 Through 6
Box 3 starts out by showing the total of your earnings subject to Social Security tax. While box 4 tells the amount of Social Security tax actually withheld.
Box 5 gives the number showing how much you should pay in Medicare tax, followed by 6 showing how much you did pay. The employee part of the Medicare tax is 1.45%.
Boxes 7 and 8
These boxes matter if you are an employee who receives tips as part of your compensation. Box 7 shows how much you report in tips and box 8 how much your employer reported in tips to you.
Wondering why your box 9 is blank? Not to worry, it used to be part of a tax perk that is no longer available. The IRS hasn’t changed the form, so employers just leave it blank.
This box applies if you receive dependent care money from your employer.
In box 11 if you have deferred earnings, those are earning that were owed and you deferred to a later date. If some of those were paid during the calendar year, those would be reported here.
This box would show other kinds of compensation like contributions from your employer to a 401k plan, for example.
You may have some wages that you did not pay federal taxes on. For example, if you participate in a retirement plan. You put the money into the plan without having to pay taxes on the money.
This is sort of the miscellaneous box. If there were any other withholding, like union dues for example, that were withheld, they can be reported in this box.
Boxes 15 Through 20
These boxes are set aside for the employer to include information about state and local taxes.
The W-2 form should have all the information you need to report wages for your tax returns. You would use the W-2 form with your deductions to file your taxes.
If you or your employer need to create a W-2 form they can go online and use a W-2 generator.
Differences Between W-2 and W-4
While forms relate to withholding from your wages, there are a couple of key differences.
Who fills out the form is one of the differences. The W-4 form is completed by the employee, while the W-2 form is completed by the employer.
The other key difference is when the form is completed. It’s likely you will only fill out a W-4 form when you start employment or your number of dependents change. On the other hand, the employer should complete the W-2 form yearly.
Understanding W-4 Vs W-2
While all the letters and numbers of the IRS forms can seem confusing, understanding the W-4 vs W-2 forms is necessary, especially at tax time.
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