Tax season is often one of the worst times of the year, especially if you own a small business. There are often more financials and forms to fill out than you know what to do with.
Today we are breaking down two of the most common forms for small business owners: W2 and W4. We are going to start by telling you what each form does, when they are due, who fills them out, what information you need for each form, etc.
Then we will compare each form to give you a better idea of the differences between the two.
All About Form W2
What is it?
A W2 form, also known as the Wage and Tax Statement, is the document that all employers must send to their employees and then to the IRS.
What is it used for?
The W2 form is used to report all of your employees’ annual wages and the amount of taxes withheld from their paychecks.
All employers must send a W2 form to any employee that they pay a wage to, salary, or other types of compensation. The exception is for self-employed or contracted workers, who will file their own taxes with a separate form.
The IRS also uses this form to track taxpayer’s wages and tax obligations, which is why it is crucial that the earnings listed on the employee’s W2 match the reported earnings on their personal taxes (otherwise, the IRS will likely make an audit).
The W2 form is also used by the Social Security Administration to calculate social security benefits. Employers will file all the W2 forms and declare all FICA taxes from the previous year to the Social Security Administration.
When is it due?
Every employee must receive their W2 form on or before January 31st to give them ample time to fill out the form. They will file it with their regular taxes, hopefully before the April 15th deadline.
Employers must also file the previous year’s W2 forms to the Social Security Administration before February.
What do you list on a W2 Form?
There are a lot of fields to be completed on the W2 form, separated into two different types of fields:
- Employer Information. Employer Identification Number and Employer state ID number.
- Employee’s total earnings over the year. This includes the amount of wages/salary, the amount of federal income tax and social security withheld from the employee’s earnings, and tips earned by the employee (if any).
All About Form W4
What is it?
The W4, also known as an Employee’s Withholding Allowance Certificate, is used by employers to determine the correct amount to withhold from an employee’s paycheck for federal tax purposes.
What is it used for?
The W4 is used to determine how much an employer should withhold from their employee’s paycheck for tax purposes.
The amount withheld based on the W4 will then be sent by the employer to the IRS, along with information to identify the employee, including their name and social security number (in the W2 form).
When is it due?
The W4 is not often filed to the IRS directly. Rather it is used by the employer. That is why the employer usually determines the due date for the W4.
The employer needs to complete the W4 at least before he pays the employee’s first paycheck.
What do you list on the W4 form?
The following is a list of information that an employee needs to provide on a W4 form:
- Social Security Number.
- Marital Status.
- Allowances planned to claim (allowances can be tricky for many employees, though thankfully, there are plenty of resources to use in determining what allowances an employee should claim).
- Any additional income an employee wants withheld from their pay.
- If the employee is exempt from making tax payments for any reason.
The following is a list of information that the employer must provide on an employee’s W4 form:
- Company Name.
- Company Address.
- Employer Identification Number.
- Employee’s Start Date.
W2 vs. W4 Comparison
Below is a table summarizing the differences between the W2 and W4 form:
|W2 vs W4||W2||W4|
|Purpose|| || |
|Filled Out By And Sent To||It is filled out by the employee and sent to the IRS.||It is filled out by the employee and filed with the employer.|
|Information Listed On Form|| || |
|Deadline||Must be sent to the employee before January 31st, and filed before taxes are due on April 15th.||Set by the employer, but typically before the first paycheck.|
Tax Forms Confusing No More
We hope that this post has cleared up any confusion on forms W2 vs. W4. It is vital to fill out these forms correctly, both for the employee and for the employer, to avoid trouble with the IRS.
At Camino Financial, we always strive to fulfill our motto: “No Business Left Behind,” and a big part of that is giving back through our business loans and educational resources.