W4 vs W2: What is the Real Difference?
With Tax Season in swing, let’s talk about two very important forms, one pre-employment, and one when tax season comes around. Although they sound the same, the W4 and W2 forms are very different, and each one can affect your total earnings after taxes. We examine the difference between a W4 vs W2 and why it is important to know about each.
The W4 is a tax form that is used to calculate the amount of federal tax that is going to be withheld from your paycheck. When filling out a W4, an employee has to consider factors such as marital status, whether they rent or own a home, how much money they are saving, loans they have to pay, the number of dependents that they have, and even their employment status. The W4 is required by all employees that earn more than $800 a year.
Furthermore, the form has to completed as an employee starts a new job. The employer may update the W4 during the employee’s tenure at the job pending any changes in the employee’s personal life, or financial situation.
The W2 is different than the W4 because it does not calculate your withholdings. Instead, it shows how much was withheld, and how much money you earn back in your refund, or how much you owe. It is the form that employees receive from their employers that outlines how much money was made, and how much money was withheld for social security, federal, and state taxes. It also shows how much money was withheld for benefits such as health, dental, and vision care (if the company offers is.)
Employees use their W2s when filing taxes to determine how much money was withheld from their paychecks they can earn back. Conversely, it is also used to determine if the employee owes money during Tax Season, because not enough money was withheld from each paycheck. Employees use this information on their Form 1040 when filing taxes.
Employers are required to give their employee’s their W2s with enough time that they can file their taxes by the April deadline. Employers also submit a copy of the W2 to the Social Security Administration and keep a copy on file for a minimum of 4 years (4 years is the threshold for the IRS when conducting an audit on a business.)
To Wrap It Up
Now, all you have to be concerned about as an employee is to fill out your W4 accurately. If you do not accurately fill it out, not enough money may be taken out of your paychecks. You may end up paying during Tax Season, or too much money will be taken out, and you will not see that until you file for your refund.
While we mostly review survey sites and ways to make money online, occasionally we will address questions that our readers bring to our attention. One question we repeatedly get is “what tax forms should I expect from surveys sites if I earn substantial amounts of money on the platform?” When you have earned over $600 on a survey site platform, the vendor will send you a 1099 form instead of a W4 or W2. Earnings under $600 will not require the vendor to send you a form, but you should report all earned income on your taxes. While $600 may seem like a lot to make from one site, we have identified multiple opportunities where people have earned much more. Feel free to ask more questions below or check out other money-related content on our site.