W2 vs W4: Key Differences You Need to Know for Better Filing

Taxes can be complicated, and understanding the forms you encounter is essential to managing your finances effectively. 

Two of the most common IRS tax forms are the W-2 and W-4, each serving a different purpose in the payroll and tax process. 

If you’ve ever wondered how these forms differ and when they come into play, this article will break it down for you.

What is a W-4 form?

The W-4 Form, or the Employee's Withholding Allowance Certificate, is completed by employees when they start a new job or experience a significant life change, such as marriage, having a child, or adjusting additional income.

What’s the purpose of Form W-4?

The purpose of the W-4 is to tell your employer how much tax to withhold or take out of an employee's paycheck each pay period. It’s based on your employee's wages, filing status, dependents, and extra income or deductions.

Form W-4 details

The W-4 includes information about the employee, such as the filing or marital status (single, married, head of household), number of dependents, and extra withholding. The employer uses that info to calculate how much tax to withhold from each employee's paycheck.

When to update Form W-4

You should update Form W-4:

• When you start a new job.

• Experience life changes that impact your tax situation.

• Want to adjust your withholding for a larger refund or smaller tax bill.

What is a W-2 form?

The W-2 Form, officially called the Wage and Tax Statement, is issued annually by employers to employees. It summarizes the employee's earnings and tax withholdings for the previous year.

Purpose of Form W-2: Wage and Tax Statement

The purpose of the W-2 is to provide a record of income earned and taxes withheld for the tax year before filing. It’s used to complete your annual tax return and is submitted to the IRS and state tax agencies.

Key features of Form W-2

The key features of Form W-2 include total employee wages, tips, and other compensation earned during the year and federal, state, and other taxes withheld.

Employees use the W-2 to file their income tax return (e.g., Form 1040).

When you receive Form W-2

Employers are required to send W-2s to employees by January 31st each tax year for the previous tax year.

What is the relationship between Form W-2 and federal income tax?

W-2 forms report the correct amount of an employee’s income and taxes withheld for the tax year, which is used to determine their federal income tax liability.

Employees use the information on their W-2 form to complete their tax return and claim any tax credits or deductions for which they are eligible.

Employers must also use W-2 forms to report federal income tax withheld to the IRS.

Reporting to the Social Security Administration

Employers must transmit W-2 forms to the Social Security Administration (SSA) by January 31st of each year.

The SSA uses the information on W-2 forms to determine an employee’s Social Security and Medicare taxes.

Employers must also report state income taxes withheld to the relevant state tax authority.

What is the deadline to file W-2 forms?

Employers must distribute W2 forms to employees and transmit them to the Social Security Administration by January 31st of each year.

Employers who fail to meet this deadline may be subject to penalties and fines from the IRS.

W-2 vs. W-4: Key differences

Why are both forms necessary?

These forms are essential for tax planning and filing.

1. Form W-4: Tax planning

Adjust Form W-4 so the right amount of tax is withheld throughout the year, so you won’t be surprised with a big tax bill or refund when you file your taxes.

2. W-2: Tax filing

The W-2 records your income and withholdings so you can accurately report them when you file your taxes. 

Why should you incorporate Shoeboxed into W-2 and W-4 management?

While Shoeboxed doesn’t directly manage W-2s or W-4s, it can help with financial record organization and tax document management and simplify the tax filing process.

Here’s how Shoeboxed fits into the management of W-2s and W-4s.

1. Tax documents

Shoeboxed helps you digitize and store tax-related documents like pay stubs and W-2s to have them on hand when you need to review or file taxes.

For freelancers or independent contractors who don’t get W-2s, Shoeboxed can manage expense receipts, income records, and 1099s.

To digitize tax-related documents, photograph your receipt or document using your phone. The Shoeboxed app will automatically upload a digital copy to your Shoeboxed account.

If you are overwhelmed with many receipts and don’t want to scan them yourself, Shoeboxed offers an outsourcing option. You can mail your receipts or documents to Shoeboxed using their free pre-paid Magic Envelope. They will scan, human-verify, and upload them to your account for you.

Shoeboxed is the only receipt scanner app that will handle both your paper receipts and your digital receipts—saving customers up to 9.2 hours per week from manual data entry!

This stores all your tax info and expenses in one place without any manual entry.

2. Tracking expenses for W-4 changes

When filling out or updating a W-4, Shoeboxed can help you see your financial situation by giving you a snapshot of deductible expenses like business expenses, medical bills, or charitable donations.

Shoeboxed uses OCR (Optical Character Recognition) to extract key data from invoices, such as purchase date, vendor, and amount. Then, it automatically categorizes the receipt based on your predefined or tax categories, saving you time.

This will help you make informed decisions about withholding changes to avoid overpaying or underpaying taxes.

3. Filing with a W-2

You can create professional, IRS-compliant expense reports with receipts attached in seconds. Shoeboxed compiles your expenses into a neat expense report with just the click of a button.

When filing your tax return using your W-2, Shoeboxed’s categorized expense reports and digital records make the process easier by providing supporting documentation for deductions or credits.

If there’s a discrepancy between your W-2 and personal records, Shoeboxed has a detailed archive to cross-reference transactions.

4. Audit ready

If an audit requires proof of deductions or income related to your W-2 or tax return, Shoeboxed has all receipts and records stored securely and IRS-compliant.

Example

You change your W-4 to reflect additional deductions for work-from-home expenses.

Shoeboxed can track and store those deductions—office supplies or internet costs—so you have them on hand when you file taxes and claim those deductions with your W-2.

Shoeboxed helps with the W-2 and W-4 process by organizing supporting documents, tracking deductible expenses, and preparing for tax filing.

What are some best practices or tips for filing W-2 and W-4 forms?

Here are some good tips I have found to be very helpful when filing W-2 and W-4 forms:

• Use payroll software to streamline completing and filing W-2 and W-4 forms.

• Ensure accurate completion of W-2 and W-4 forms to avoid penalties and fines.

• Provide employees with clear instructions on how to complete their W-4 forms.

• Review and update W-4 forms annually to ensure accurate tax withholding.

Frequently asked questions

Can I change my W-4 during the year?

Yes! You can change your W-4 at any time. If your situation changes—like getting married, having a baby, or earning extra income—you can submit a new W-4 to your employer.

What does Form W-2 include?

A Form W-2 reflects gross earnings and deductions for income, Social Security, and Medicare taxes.

What if my W-2 needs to be corrected?

If your W-2 is incorrect, contact your employer to request a corrected W-2 (W-2c). The corrected form is required for tax filing.

In conclusion

The W-2 and W-4 are both essential for taxes but for different reasons. The W-4 controls just how much income tax is withheld from your paycheck, and the W-2 is a summary of the employee's annual income and taxes. 

By using Shoeboxed in your financial workflow, you’ll simplify tax management and streamline the process when dealing with these tax forms.

Caryl Ramsey has years of experience assisting in bookkeeping, taxes, and customer service. She uses various accounting software to set up client information, reconcile accounts, code expenses, run financial reports, and prepare tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS and is a contributing writer to SUCCESS magazine.

About Shoeboxed!

Shoeboxed is a receipt scanning service with receipt management software that supports multiple receipt capture methods: send, scan, upload, forward, and more!

You can stuff your receipts into one of our Magic Envelopes (prepaid postage within the US). Use our receipt tracker + receipt scanner app (iPhone, iPad, and Android) to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email address.

Turn your receipts into data and deductibles with our expense reports, including IRS-accepted receipt images.

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