Alphabet Soup Can Spell Trouble for Employers

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W-2-formLike many types of employment-related paperwork, W-2 and W-4 forms are a fact of life for employers and employees alike. Both are related to an employee’s tax situation, but these two similar-sounding forms serve different functions.

About the W-2

Most of us are more familiar with theW-2 form than the W-4, since we must submit W-2 forms when filing annual tax returns each April. The W-2 form is a tax form that employers provide to each of their employees after the last pay period of the year is complete. This form includes the total amount of wages earned, federal and state taxes withheld, and Social Security contributions for that tax year.

Employers must provide all employees who worked for them during that tax year a copy of their W-2 form no later than January 31st of the following year (e.g. W-2s for 2015 must be provided by 1/31/16).  Employers must also submit a copy to the Social Security Administration (SSA) by February 29th and keep a copy on file for a minimum of four years.

About the W-4

Form W-4 is used to calculate the amount of federal income tax that should be withheld from an employee’s pay. Factors an employee should consider when determining this amount include his or her family situation (e.g. number of children and marital status), savings contributions (e.g. college, retirement, etc.), and employment status, among others. If unsure about how much to pay to withhold, an employee may consult the freeIRS Withholding Calculator.

A W-4 form is required for all employees earning $800 or more per year, and a new form must be completed whenever an employee starts a new job. The form also may be updated by the employee at any time based on changes in his or her personal or financial situation.  If an employee fails to submit the form, the IRS states that their employer should withhold at single filing status with zero allowances, the highest tax bracket, until the employee submits the W-4 form.

Employers are required to remind employees before December 1st of each year to submit a new W-4 form if their withholding allowances have changed, or will change for the coming year.

Employer Responsibilities

Dealing with tax forms, deadlines, calculations and filing requirements can be a burden for employers, especially if their company has high turnover or a large number of employees. Simply preparing W-2s and answering employees’ questions about them can be very time-consuming each January.

For employers who work with a Professional Employer Organization (PEO), dealing with W-2 and W-4 forms is simple.  As the employer of record, the PEO assumes responsibility and liability for payment of wages, as well as compliance with regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. PEOs have a well-established role in reporting income and handing withholding, FICA and FUTA for their client companies.  Why not hand off W-4s, W-2s, and other employee-related paperwork to a PEO?  That’s their business…so you can focus on yours.

Contact the author directly at This is the twenty-third post in our 30 Days of HR Outsourcing series. Visit us each day in November for information on HR, payroll, benefits, workers’ comp and risk management topics, or subscribe to be notified instantly when a new post is published.

Photo: Viachelslav Krisanov