Hiring Your First Employee: Tax and Paperwork Guide
From Tax Guide.
Tax Guide · Arab, Alabama
W-2 and W-4 Forms for Employers: What to Collect and File
Employers collect a W-4 from each new hire and issue a W-2 after year end, with a W-3 to the government. Here is who gets what and when.
The short answer
What is the difference between a W-4 and a W-2?
A W-4 is the form an employee gives you at the start to tell you how much income tax to withhold, and a W-2 is the form you give the employee after the year ends to report what you paid and withheld.
Think of it as the start and the finish of the year. The W-4 comes in when someone is hired, and the W-2 goes out after the payroll year is done. In between, your payroll records tie the two together.
You also send a copy of each W-2 to the Social Security Administration, along with a transmittal form called the W-3 when you file on paper.
At hiring
What do employers do with a Form W-4?
Employers ask every new employee to complete a Form W-4 and use it to calculate federal income tax withholding from each paycheck.
You keep the completed W-4 in your payroll records. In most cases you do not send it to the IRS. The form is meant for you, so you can withhold the right amount. If the IRS ever asks you to submit a particular employee's W-4, they will tell you so in writing.
Employees can give you a new W-4 any time their situation changes, such as a marriage, a new child or a second job. You must start using the new form within a limited time set by the IRS, so do not let it sit. Our guide to adjusting your withholding with a new W-4 explains the employee side.
Alabama has its own withholding certificate for state income tax. We cover that in our guide to Alabama withholding and unemployment tax.
At year end
When do employers have to give employees a W-2?
Employers must give each employee a W-2 early in the new year, by a deadline the IRS sets, and they file the copies with the Social Security Administration by a similar deadline.
The W-2 reports the wages you paid, the federal income tax, Social Security tax and Medicare tax you withheld, and other items such as certain benefits. The employee uses it to file their own return, so a late or wrong W-2 causes real trouble for them. Employees on the other side of this can read what to do about a missing or incorrect W-2.
Form W-3 summarizes all the W-2s you file. Many employers now file W-2s electronically through the Social Security Administration's online service, which handles the totals for you. The IRS sets the rules on when electronic filing is required, so we confirm the current requirement each year.
Quick reference
Which payroll forms go to whom?
Each form has a different sender, receiver and timing, and mixing them up is a common source of errors.
Use this table as a general guide to the year-end paperwork for employees.
| Form | Who completes it | Who receives it | When |
|---|---|---|---|
| W-4 | Employee | Employer (kept on file) | At hire and when things change |
| W-2 | Employer | Employee, plus a copy to the SSA | Early in the new year |
| W-3 | Employer | Social Security Administration | With paper W-2 filing |
| 1099-NEC | Business | Contractor and the IRS | Early in the new year, when required |
General guide only. Deadlines and filing methods are set by the IRS and can change.
Common problems
What are the most common W-2 and W-4 mistakes?
The most common mistakes are wrong Social Security numbers or names, late filing, and misclassifying workers who should have been on the W-2 side.
A few small habits prevent most problems. Check names and numbers against the Social Security card when you collect the W-4, not in January. Reconcile your W-2 totals against your quarterly payroll returns before you file. If the numbers do not match, sort out the difference first. Our guide to payroll tax deposits and Form 941 explains what those quarterly returns include.
- Missing or mistyped Social Security numbers and names.
- Forgetting to update a W-4 when an employee hands you a new one.
- Treating a worker as a contractor when the facts point to an employee (see employee or independent contractor).
- W-2 totals that do not agree with the year's payroll returns.
- Missing the deadline to furnish or file the forms, which can bring penalties.
How we can help
How Melton Tax Services can help with W-2s and W-4s
Our payroll and bookkeeping service can keep your payroll records organized so the year-end forms are prepared from accurate records.
We can help with payroll, the records behind it and the year-end reporting. See our payroll and bookkeeping page for details, or read about hiring your first employee if you are just getting started.
To talk about your business, contact us or call 256-586-4635. We serve Arab and the surrounding area. Please do not send Social Security numbers or documents through this website. Bring them by the office or call us.
Answers
Questions about w-2 and w-4 for employers
Do I send the W-4 to the IRS?
Usually not. Employers keep the W-4 in their records and use it to withhold. The IRS may ask an employer to submit certain W-4s, and if so it will notify you in writing.
What if an employee does not turn in a W-4?
Without a W-4, the employer generally must withhold as if the employee is single with no adjustments. It is better to get the form completed at hiring, since a missing form can lead to withholding that does not fit the employee's situation.
Do I have to give a W-2 to a contractor?
No. Contractors generally receive a Form 1099-NEC instead, when payments are high enough to require one. The W-2 is for employees only.
What if I find a mistake on a W-2 after I filed it?
Employers correct errors using Form W-2c, and file a corrected transmittal form with it. Give the corrected copy to the employee as well, since they may need to amend their return.
Do I still need a W-2 for an employee who worked only a short time?
Yes. Any employee who received wages from you during the year generally gets a W-2, even for a short stay. If the employee leaves, you may also need their mailing address for the year-end forms.
Does Alabama require a separate W-2 filing?
Alabama has its own rules for reporting wages and withholding to the state. Alabama has its own rules, and we check how they apply to your business.
Read next
Related reading
Payroll Tax Deposits and Form 941
From Tax Guide.
How To Fill Out a New W-4 and Adjust Withholding
From Tax Guide.
Employee or Independent Contractor?
From Tax Guide.
Payroll and Bookkeeping
A service Melton Tax Services provides.
Melton Tax Services
Questions about your taxes or your business?
Our team in Arab is just a phone call away, and we are glad to talk it through with you.