Payroll and Taxes

What is the Difference Between W-2 and W-4?

Lynn Brown
January 8, 2024
min read

Both the W-2 and W-4 forms are tax-related documents that businesses encounter at various stages of their operations. Employers must complete the W-2 form, reporting their income and deductions to the IRS. 

In their turn, employees fill out the W-4 form as part of the new-hire paperwork, providing information to the employer about the amount of tax to withhold from their paychecks.

Let's look at these two forms, explore their similarities and differences, and understand when and how they should be completed.

What is a W-4?

Form W-4

W-4 is also known as Employee's Withholding Allowance Certificate. It is a form that employees fill out during the first days after being hired. It is a payroll document that informs your employer about the amount of taxes they can take out from your income.

Remember that the W-4 form doesn't apply when you hire an independent contractor. 

What kind of information does a W-4 include? 

  • Personal information- full name, address, and Social Security Number
  • Filing status- single, married filing jointly, head of household
  • Dependents- the number of allowances the employee is claiming, including themselves, their spouse, and any dependents.
  • Additional income- if the employee expects to have additional income not subject to withholding (e.g., interest, dividends, or a second job), they may need to indicate this on the form.
  • Deductions- If applicable, employees can specify additional amounts to be deducted from their income, which may reduce the overall tax withholding.
  • Extra withholding- Employees can request an additional amount to be withheld from each paycheck to cover any anticipated tax liability, ensuring they don't owe a significant amount during tax filing.
  • Signature- the employee must sign and date the W-4 to certify that the information provided is accurate.

The employer needs this information to determine the amount of taxes that need to be paid. For instance, in the US tax system, employees pay less taxes if they are married or have children.

What is a W-2?

Form W-2

The W-2, also known as the Wage and Tax Statement, is a vital document that employers provide to their employees at the end of each tax year ( by Jan 31). This form details the employee's total earnings, tax withholdings, and other relevant financial information.

Some of the main sections of the W-2 form include:

  • Employer identification details
  • Earnings, tips, and additional compensation
  • Payments made for Social Security and Medicare payroll taxes
  • Amounts withheld for federal income tax
  • State income tax withholdings
  • Local income tax withholdings
  • Contributions made towards retirement plans

Every business owner is required to complete the W-2 form, file it, and distribute it to each employee who has received a minimum of $600 in income during a tax year. This obligation persists even if the employee is no longer associated with the company at the time of filing.

W-2 forms can be sent to employees either through email or traditional mail. To enhance efficiency, numerous businesses use tools such as, automatically generating the necessary W-2 forms for the preceding year's beginning of the new year.

W-4 vs. W-2: Main Differences

Tips for Small Businesses

The following tips will help you file the W-2 and W-4 forms correctly, optimizing the business processes:

Stay proactive: Avoid delaying the file compilation process until the last minute, as this can lead to missed deadlines and disrupt normal business operations. It's advisable to request employees to complete the W-4 form before or on the first day of employment, and then add the received information to your payroll system. 

Use electronic filing if possible: The IRS recommends business owners to electronically file forms for a faster process that also reduces paper usage.

Use payroll solutions: Incorporating a payroll solution such as is among the most efficient ways to save time.

Exercise caution: When filing W-2 and W-4 forms, be extra careful. Even a minor error can have negative impacts on your business and employees.

Frequently Asked Questions (FAQs)

  1. What are three key differences between the w-4 form and the w-2 form?

The W-4 form guides federal income tax withholding preferences for each paycheck, is completed by employees, and is updated as needed. In contrast, the W-2 form is issued by employers annually, summarizing an employee's yearly earnings and tax withholdings.

  1. Does an independent contractor fill out a w4?

No, W-4 forms are designed for employees. Independent contractors manage their taxes and typically provide a Form W-9 instead of a W-4 to clients.

  1. Which form tells an employer how much to deduct for taxes?

The form that tells an employer how much to deduct for taxes is the W-4 form. Employees complete the W-4 form to provide information about their filing status, allowances, and any additional amounts they want withheld from their paychecks for federal income tax purposes. This form guides employers in calculating the appropriate amount to withhold from each paycheck based on the employee's tax withholding preferences.

  1. Is it possible for employers to automate the generation of required W-2 forms?

Yes, many payroll solutions offer features that can accelerate the generation of W-2 forms. One such solution is The latter calculates the necessary information based on the payroll data throughout the year and generates W-2 forms for employees. 

With the help of, businesses can save their precious time, ensure accuracy, and comply with tax regulations. Give our payroll solution a try today! 

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