Difference Between a W-2 & W-4

by Grace Ferguson

A W-2 and a W-4 form are related to employee taxes. Although they share that singular trait, they are significantly different from each other. Your W-4 relates to federal income tax withholding and your W-2 relates to tax filing. Your employer plays a key role in the processing of both forms.

W-4 Purpose

Your employer uses your W-4 form to figure the amount of federal income tax to take out of your paychecks. Your withholding amount depends on the allowances and filing status you put on the form and the Internal Revenue Service Circular E tax table that matches your W-4 data and pay period and wages. Since each employee’s personal and financial situation is different, each W-4 is relevant to the employee who completes it. Without the form, it’s difficult for your employer to know how much tax to withhold from your paychecks. This is why the IRS says if an employee fails to submit the form, your employer should withhold at single filing status with zero allowances, the highest tax bracket, until she turns in the form.

W-2 Significance

Your W-2 is an annual form that your employer prepares after the last pay period of the year has passed. The document shows your taxable wages and taxes withheld for the tax year. Each taxable wages box on the W-2 relates to wages that were subject to either federal income tax, Social Security tax, Medicare tax, and, if applicable, state and local income tax. Beside each taxable wages box, your employer puts the total withholding amount. For example, Box 1 shows your wages from which federal income tax was deducted, and Box 2 shows the amount withheld.

Form Filing

If you want to change your federal income tax withholding conditions, you complete a new W-4 and file it with your employer. Your employer is solely responsible for preparing your annual W-2 and filing it with the Social Security Administration and the respective state and local agencies by the deadline. Your employer is also supposed to give you copies of the W-2 to file your tax return with the IRS and applicable state and local agencies, typically by the end of January. If there’s a mistake on your W-2, your employer should promptly correct it on Form W-2c and file the corrected form with the administering agencies. It also gives you a copy of the W-2c so you can amend your tax return, if applicable.

W-2 Reconciliation

Your last paycheck stub for the year and your W-2 should match if you don’t have pretax deductions or nontaxable wages. Those types of deductions and wages are not subject to taxes so they aren’t included in the taxable wages boxes of your W-2. If you have pretax deductions such as Section 125 health insurance or nontaxable wages such as meals or lodging reimbursements, add the amounts to the taxable wages shown on your W-2; the result should match what’s on your pay stub.

About the Author

Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.

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