The difference between a W-2 and W-4 for small business owners

Editorial Team

3 min read
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Launching a business is exciting, but it also involves taking on a lot more paperwork. This is especially true if you start hiring employees, which means having to manage more IRS tax forms, such as the W-2 and W-4.

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If you’re not sure what these two documents are, this guide explains the difference between W-2 and W-4 tax forms, why these forms exist, and who is responsible for completing which.

What is the difference between a W-2 and W-4 tax form?

Sometimes referred to as an “employee’s withholding allowance certificate,” a W-4 informs employers how much tax they should withhold from each employee’s wages.

By contrast, a W-2 is where you report your employee’s wages and taxes every year. In addition to gross income, this document includes retirement account contributions, Social Security, Medicare, and other taxes and deductions.

In short, the main difference between W-2 and W-4 tax forms is that the latter is completed by the employee and tells the employer how much federal tax to withhold, and the former is completed by the employer and reports on the employee’s wages and deductions.

What are the filing requirements for W-2s and W-4s?

Each employee on your team is responsible for completing a W-4 – typically during the hiring and onboarding process. As an employer, you then use this completed W-4 to calculate how much federal tax to withhold from each paycheck. There’s no need to send this document to the IRS, nor does it need to be updated unless the employee’s financial or personal situation changes after being hired.

For example, receiving a raise might place an employee in a new tax bracket. This could trigger more federal tax withholding. Other reasons to revise a W-4 include marriage, divorce, having a baby, or getting a second job.

The steps when submitting a W-2 form for small business owners are slightly different. You’re responsible for filling out this IRS document for each employee on your team. The form itself covers wages and taxes paid during the previous calendar year, but you must send it electronically or by mail to the Social Security Administration by Jan. 31st of the new calendar year. For example, a W-2 filed in 2022 will reflect the payroll and tax information for 2021.

These reporting requirements also extend to your employees. Each worker must receive the previous year’s W-2 by the end of January. Depending on where you live, there may also be small business W-2 requirements at the local or state level.

Putting employee payroll, schedules, and taxes on autopilot

Hiring employees often allows you to expand your operations, take on more customers, and offer better service. Yet, it also introduces a host of time-consuming obligations – including employee scheduling, payroll administration, and tax preparation. Fortunately, it’s possible to automate many of these tasks, giving you more time to spend on the more profitable aspects of growing your small business.

At Clover, our point of sale solutions come with tools designed to help make managing your team easier. With our employee management solutions, you can easily update schedules, monitor employee performance, and maintain employee records. Clover also partners with some of the biggest names in payroll – ADP, Gusto, and Paychex – to help small businesses pay their employees, ease payroll tax, and prepare W-2s.

To discover how our employee management solutions can help you get more value out of managing your human resources, contact a Clover Business Consultant today.

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This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.