What's the difference between a W-2 and a W-4?

While they are both IRS tax forms, W-2 and W-4 forms have very different meanings and purposes. Let's break down how, when, and why to use each one. 

What is a W-4 form?

The W-4 form is used to inform your employer how much money in taxes to withhold from your paycheck. Basically, it’s an employee-driven tax form that tells a company how much federal income tax to deduct from your salary each pay period. You might fill out a W-4 or “employee’s withholding allowance certificate” when you start a new job or need to make a change to your withholdings. 

The IRS issues a new W-4 form each year, so make sure you’re using the most recent W-4 form. 

What is a W-2 form?

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Unlike the W-4, which the employee creates, W-2 forms come from your employer to you. Each tax year, employers generate a W-2 form detailing how much money you earned during that year and how much money in taxes they withheld from your paycheck.

Your employer fills out the W-2 and sends copies to you, the Social Security Administration, and tax agencies. A typical W-2 report shows your gross earnings and any deductions for things like income, Social Security or Medicare taxes, and other special tax-protected contributions or accounts.

W-4 vs. W-2: A quick recap

So, in simple terms: the W-4 is a form you fill out with your employer to instruct them on how much tax to take out of your wages. The W-2 form is an end-of-year tax report detailing what you earned and which taxes were withheld. 

Additional tips for filling out your W-4

• Use the IRS withholding calculator to determine how you should claim.

• Consider claiming additional deductions if you have dependents or qualify for certain tax credits.

• Update your W-4 whenever there are changes in your life that may impact your tax situation (e.g., marriage, having a child, buying a house).

• Review your W-2 at the end of the year to ensure accuracy and make any necessary adjustments for the following year.

FAQs about W-4 and W-2

Q: Do I need to fill out a new W-4 every year?

A: You only need to update your W-4 when there are changes in your tax situation, your job, or for a “life event” as defined by the IRS. However many tax experts recommend reviewing your W-4 at least annually to make sure it’s still accurate. 

Q: Can I change my withholdings throughout the year?

A: Yes, you can submit a new W-4 to your employer at any time unless it is “locked” for that tax year, in which case you can make changes for the next tax year. 

Q: How do I know if I need to update my W-4?

A: If you receive a large tax refund every year, it may be an indication that you are overpaying in taxes. In this case, you may want to adjust your withholdings using the W-4.

Q: Do I need to submit a W-2 if I am self-employed?

A: Self-employed individuals receive a 1099 form for their taxes and must also pay SE (self-employment) taxes for Medicare and Social Security themselves.

Q: Can I file my taxes without a W-2?

A: If you don’t have a W-2 yet, you can use your final pay stub or ask your employer for a copy of your W-2 if you have not received it by the tax filing deadline. Be sure to follow the official instructions on the IRS website for filing this way. 

Q: What should I do if there is an error on my W-2?

A: First, notify your employer to correct the error. If they do not make the necessary changes, you can contact the IRS for assistance.

Q: Is there a time limit for correcting errors on a W-2?

A: Yes, employers have until January 31 of the given tax year to issue correct W-2 forms. If you do not receive a corrected form by this date, you can contact the IRS for assistance.

In a nutshell, the W-4 is for giving instructions to your employer on how much tax to withhold from your paycheck, while the W-2 shows how much you earned and how much tax was withheld at the end of the year. Keep these forms in mind when starting a new job or undergoing a major life event in your personal life to help you stay tax-savvy.