When you're working, the Internal Revenue Service requires your employer to withhold money from your paycheck during the year to pay for income taxes. In addition, your employer also has to report how much you've made and how much was withheld. To meet these requirements, you and your employer have to file multiple forms, including Forms W-2 and W-4. These forms help you and your employer make sure your paycheck withholding and your income are reported properly. Knowing the difference between a W2 and a W4 also helps you understand withholding and how to craft the perfect balance between meeting your tax obligations without overpaying.
A W2 vs. a W4
The Form W-4 that you fill out tells your employer how many allowances you are claiming to reduce your tax, as well as your filing status. Together with your income, these details tell your employer how much to withhold from your paycheck for federal and state income taxes. Your W-2, on the other hand, tells you how much taxable income you earned during the year and how much your employer withheld for taxes. You generally need to have a W-2 from each of your employers before you can file your taxes for the year.
Timing of Filing
You must fill out a W-4 when you start working for an employer so the company knows how much to withhold from each paycheck. W-2s are prepared and filed by your employer at the end of every year to document how much money you made. Your employer is required to supply a copy of your W-2 by Jan. 31 of the following year. For example, your employer must mail your 2018 W-2 by Jan. 31, 2019.
Updating Forms When Needed
You must file an updated W4 form whenever your life circumstances change and you need to change your withholding. For example, if you have a child and therefore can claim an extra dependent, you can file a new form to reflect your additional W4 allowances to reduce your withholding. Similarly, if you divorce and need to change your filing status from married to single, you must file a new W-4 to ensure correct withholding.
Usually, a W-2 is issued only once per year. However, if you notice that your W-2 has errors as to how much you earned, you can request that your employer issue a corrected version.
Who Gets Which Form?
When you turn in your W-4, your employer keeps a copy on file but does not have to send it to the IRS. However, if your withholding for the year is significantly less than your tax due, the IRS may investigate to make sure you did not file a fraudulent W-4. After W-2s are prepared in January, your employer sends a copy to both you and to the Social Security Administration. When you submit your tax return, the IRS matches the income and withholding amounts against the records submitted by your employer.
How They Work Together
The more you claim on a W-4, the less tax that is withheld and reflected on your W-2. If you are willing to sacrifice a larger tax refund for more in your weekly pay, you'll want to maximize the number of exemptions you include on your W-4. If you really like getting large tax refunds, then you can minimize the number of exemptions. This will increase the amount of tax you pay and therefore could result in more tax being refunded to you.
Always Good to Review
It is always a good idea to review your W-2 and W-4 annually. This year it's especially important with the withholding changes that are occurring. You will want to make sure your exemptions on your W-4 match the new withholding table for the 2019 tax season.
- Internal Revenue Service: General Instructions for Forms W-2 and W-3
- Internal Revenue Service: Withholding Exemptions -- Personal Exemptions -- Form W-4
- Internal Revenue Service: Topic 752 -- Form W-2 -– Where, When, and How to File
- Internal Revenue Service: Like Share Print Information Returns Processing
- CNBC: 1 thing every employee should do in 2018 because of the new tax law
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."