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W2 vs. W4: Exploring the Differences Between Forms

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    A Full Comparison Between IRS Forms W2 vs. W4 

    Working as an employee or a business owner will require filling out some tax paperwork regarding income earned and taxes withheld. You may have to fill out several forms to comply with the IRS tax rules; two of the most common are the W2 and W4 forms. 

    It can be confusing to understand the difference between forms W2 vs. W4, and it’s one area where seasoned tax professionals can help. This guide will explain the different functions of the two forms and ensure you have an easy time completing your tax paperwork. 

    One key difference between the W2 vs. W4 forms is simply who has to fill out the forms. Here’s a bit more detail on what distinguishes the two:

    Employees Fill Out W4 Forms to Determine Withholding

    Starting a new job means you will receive Form W4 from your employer. This form will help you determine how much in taxes your employer should withhold in the course of your employment. 

    Employers Fill Out W2 to Report What They Withheld

    Employers must fill out Form W2, which indicates how much the employee earned and how much the company withheld in taxes.  The IRS will require Form W2 at the end of the year to help them determine the taxes that an employer withheld. Employees also need a copy of the form to calculate their taxes and determine if they can expect any tax refunds. 

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    What Is Form W-4?

    Form W-4, also known as the Employee’s Withholding Certificate, is a document you must fill out for your employer when undertaking part-time and full-time employment, not contract work that receives income on Form 1099. The W-4 reveals how much federal income tax your employer must withhold from your paycheck, meaning filling out it correctly is critical to ensuring you don’t owe a huge amount to the IRS when you file your income taxes in April. 

    Once you complete Form W-4, your employer will file it with the IRS. Although it’s typical for you to submit a W-4 form with a new employer, you can submit a new form at any time to change your withholding amount. You do not want to have your employer withhold too much for taxes, and marriage, divorce, childbirth, and a part-time job are all common reasons employees submit new W-4 forms with their employers.

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    When to Use Form W4

    An Employee Withholding Certificate, or Form W4, is the form that your employer gives you once you accept an offer of employment. Here are some details about when and how to use it:

    A Must When Beginning Employment.

    Filling out Form W-4 is a mandatory task when you begin a new job, and you may need to update your form each year based on your personal or financial situation. The form provides the Internal Revenue Service (IRS) with the amount of money your employer holds from your income each pay period to pay income tax. It also helps you formulate your tax liability, income tax withholding, and the size of your tax refund each year.

    Changes in Circumstances

    You should also revise this form when you experience any work or life changes. You may have to fill a new W4 form when you get a second job or get married, for example. Anything that affects your taxes means it’s a good idea to fill out a new W4 form to ensure proper withholding. 

    The Form Can Differ by State

    Some states, such as Illinois, also require a state withholding form. Check with your employer to make sure you’re filling out the paperwork needed for your state. 

    Increasing Withholding on the New W-4 Form

    According to the IRS, you should increase your withholding if you have more than one job or you and your spouse both work. You should also increase your withholding if you have income from self-employment or other sources not subject to withholding. This will protect you from underpayment and save you from having to owe money and potential penalties when you file your tax return. You can use the IRS Tax Withholding Estimator to determine withholdings for other sources of income besides your primary job.

    Decreasing Withholding on the New W-4 Form

    The IRS suggests that employees should decrease their withholding if they are eligible for any dependent-related income tax credits, such as the child tax credit. You can also reduce your withholding if you are eligible for itemized deductions, deductions for retirement contributions, deductions for student loan interest, or any other deductions other than the basic standard deduction. The best way to ensure you get the most out of Form W-4 is to work with a trusted advisor who can advise you on the amount of withholding that is right for you.

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    Download the Standard Form W4 Here

    An employer can easily download the standard W4 form from the IRS website, which also includes instructions on how to complete the form. 

    Employees should give the completed form to their human resources department. Your employer will then use the information you provide in the tax forms to determine how much taxes to withhold, including any federal, state, or local taxes you are expected to file. They should also keep a copy of the document in their records in the event of an IRS audit. 

    Getting a new job or experiencing exciting life changes such as the birth of a child or marriage impact your financial situation. You need to accurately reflect those changes when you file your income taxes. The new, simplified Form W-4 is the document that communicates your financial situation and any applicable changes to your employer, who files the form with the IRS and takes your withholding out of your paycheck.

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    How to Fill Out Form W-4

    Filling out Form W-4 requires proceeding through five steps on the document, each for different information about your financial situation to help determine your withholding. Steps 2, 3, and 4 are optional. 

    Prior to 2020, filling out a W-4 for your employer meant you had to claim a certain number of allowances. Single filers claimed 0 and had the most income deducted from their paychecks. As the number of withholding allowances increased, the amount of withholding decreased. 

    In 2020, the IRS revamped and simplified Form W-4, so employees no longer claim specific allowances. Instead, as you proceed through each of the steps, you ultimately calculate your withholding. The IRS suggests changing the amount your employer withholds in the following situations:

    Step 1

    In Step 1 of Form W-4, you need to provide your personal information. This includes your name, address, and Social Security number. You also need to your filing status. The IRS recognizes five filing statuses on an income tax return:

    • Single
    • Married filing jointly
    • Married filing separately
    • Head of Household
    • Qualifying widow(er) with dependent child

    Step 2

    In Step 2 of the document, you must provide information about a second job. If your spouse works, you should also include that in Step 2. This will ensure your withholding will be the right amount for the income you receive in your household.

    Step 3

    If you have children or other dependents, Step 3 is where you claim them. If you are single with children, you must earn less than $200,000 to do so. If you file your taxes jointly, you must earn less than $400,000. This section on Form W-4 provides you with the credits you can take for your withholding.

    Step 4

    Step 4 is for employees who plan to claim itemized deductions when filing your income taxes. This is also the section where you report interest, dividends, or retirement income for the tax year. Some employees choose to withhold additional amounts from each paycheck to increase their refund, which you can enter on Step 4 of Form W-4.

    Step 5

    In Step 5 of Form W-4 you must provide your signature, verifying that the information you've provided is accurate.

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    When to Use Form W2

    Form W2 is also known as the Wage and Tax Statement form. It is an IRS tax form that all employers should submit to the IRS by the end of each year. The form reports several details relevant to an employee’s employment, including:
    • Identifying info about the employee
    • Their annual income from their work with the employer
    • Deductions from their income, such as tax deductions or retirement savings 

    The IRS requires employers to file a W2 form for the prior year and send a copy to the employee by January 31. Employers should send W2 forms to all people who worked in their organization in the previous year, including those who are no longer working there. Any employee who worked for multiple companies in a single year should get W2 forms from each one. Most employers send you the W2 forms by mail or email, while others may have an online self-service portal that provides the employee access to the document.

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    Important Tips to Keep in Mind When Filing Forms W2 vs. W4

    The IRS recommends that employers file Form W2 electronically , and it’s required for those who have more than 250 of them to file. It’s also a good idea to allow employees to fill out and change their W4 forms digitally. 

    The IRS will send you a confirmation email in less than 24 hours once you file your forms. Filing electronically is also more secure than using mail. 

    Understanding Forms W2 vs. W4 is essential for any taxpayer or employer, so don’t let any confusion lead to problems with the IRS. A tax expert can be the key to completing and filing these crucial forms accurately and on time.

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    Silver Tax Group Can Help You Understand Your W2 & W4 Forms

    It can be pretty hectic to deal with several W2 forms, especially if you have hundreds of employees. Getting the services of tax professionals can help ease this burden and let you focus on the core functions of your business. 

    Silver Tax Group has a skilled team of tax attorneys experienced in the ins and outs of W2 vs. W4 forms. We can guide you to the best tax outcomes and help you resolve any disputes with the IRS. Contact our office today for a quick consultation or to discuss your tax issues.

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