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W2 Definition: What It Means & How It Impacts Employment & Taxes

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Whether you’re a worker or a business owner, you need to be aware of certain employment classifications to ensure that the agreement is fair to both parties.

Today’s guide explains what type of employee a W 2 worker is, starting from the W2 definition.

You’ll read what’s included in a W 2 wage document, how to address the tax statement, and how a W 2 employee differs from other types of workers.

What is the W-2 Definition?

W2 is a classification of an employee‘s status within an organization. It refers to the traditional employment practice where an employer hires an employee to exchange their services for a range of benefits.

W2 classification is particular to the United States. It may exist in other countries under different names.

The form W2 type of employee refers to the tax form that the employer is obligated to submit for tax purposes. It’s known as the Wage and Tax Statement.

Example of a W-2 Full Form

Even if the layout differs a bit, a full W2 form will always consist of two sections: one lettered and one numbered.

You’ll find the lettered section on the left side of the form. It contains boxes to fill out the following information:

  • The employee’s SSN (social security number)
  • EIN (employer identification number)
  • The employer’s name, ZIP code, and business address
  • The business’s control number
  • The employee’s name and mailing address

The numbered section on the right and the bottom parts of the form feature boxes corresponding to the following information:

  • Total earnings including wages and tips
  • The total amount of federal income tax withholding
  • The total amount of Social Security tax withholding
  • Social security wages
  • Medicare tax-subject wages
  • Medicare withholding tax
  • Social Security tip
  • Tips that the company allocated to the employee
  • Dependent care benefits
  • Non-qualified plans
  • Miscellaneous items; the IRS (Internal Revenue Service) allocated coded boxes for deferred compensation types
  • If the employee is a statutory
  • If the employee took part in the organization’s retirement plan
  • If the employee had sick pay
  • Employer’s state ID
  • State taxable income
  • State income tax
  • Local income
  • Local income tax

W-2 Employees Compared to Others

With the understanding of a W2 employee in mind, here’s how it’s different from other employment practices:

vector graphic showing an illustration of people trying to become an independent contractor

What is a W-2 vs. 1099?

A 1099 form is a document that a self-employed worker or independent contractor turns in to the IRS. It proves that a party paid money to the 1099 worker in exchange for a service.

1099 forms include income information with withholding tax. The most common types are 1099-MISC and 1099-NEC.

What is a W-2 vs. W-4?

While IRS form W 2 is a document that the employer fills out, form W 4 is a document that the employee fills out.

W4 refers to Employee’s Withholding Allowance Certificate.

When a person takes on the role of an employee with an employer, they need to fill out this payroll form to instruct employers on the tax amount to be deducted.

A W 4 form requires information such as marital status, withholding allowances, and dependents.

Is W-2 the Same as W-3?

Although they’re similar, IRS Form W 2 and Form W 3 are not the same.

The employer fills out both types of forms and submits them to the IRS. That said, the employee doesn’t receive a copy of the W3, unlike the W2.

A W2 form contains wage and tax information for individual employees. However, a W3 form reports the total wages, taxes withheld, and taxable wages for all the employees.

As such, Form W 3 serves as a summary of all the W2 forms that an employer files.

Who is a W-2 Employee?

An employer hires a W2 employee for a role with specific duties, specific work hours, and typically at a specific location.

The W2 employee then becomes entitled to a set of rights and benefits such as health insurance and retirement privileges.

As the employer is in control of what and how work gets done, a W2 worker is–therefore–not a contractor or a freelancer. The employer is also responsible for providing all the necessary resources for the completion of the work.

While a W2 employee tends to be more committed than a contractor or freelancer, their expertise often isn’t as specialized.

Who is a 1099 Employee?

Unlike W2 workers who are traditional employees, 1099 workers are independent contractors, freelancers, gig workers, or self-employed workers.

1099 workers turn in their forms directly to the IRS, rather than having an employer do it on their behalf. Instead of payroll deductions, they file their income taxes to the IRS (they’re not on payroll).

A W2 employee can be a 1099 worker at the same time. For example, if a person works at a company that views them as an employee while also owning and running a private business. Thanks to Prop 22, app-based delivery and transportation companies currently classify their workers as independent contractors.

Individuals or companies usually hire 1099 workers for specialized tasks on a contract basis. As such, 1099 workers may work for multiple clients simultaneously.

By the 1099 definition of workers, they’re typically non-eligible for unemployment.

What Taxes Do W-2 Employees Pay?

W-2 employees pay several types of taxes, including federal income tax, Social Security tax, and Medicare tax. They may also be required to pay state, city, or local income taxes, depending on their location.

In comparison, 1099 workers typically pay more in taxes as they are responsible for the full amount of Social Security and Medicare taxes, whereas W-2 employees only pay half of these taxes, with their employer covering the other half.

Both W-2 and 1099 workers pay the same federal and state income taxes, which are determined by their income bracket.

Do All W-2 Employees Get a Salary and Benefits?

All W-2 employees do not necessarily receive a salary and benefits.

A W-2 is a tax form that reports an employee’s income and tax information to the IRS, including wages, salaries, bonuses, tips, and other taxable income.

While W-2 employees often receive benefits such as health insurance, Social Security and Medicare taxes, unemployment insurance, disability insurance, paid or unpaid time off, and retirement plans, it’s not a given for all.

The specific benefits provided can vary based on the employer and the terms of employment.

How Do You Get a W-2?

Here’s how you can obtain a W2 form in case you’re wondering:

  • From Your Employer: By January 31st of every year, you should receive a copy of your W2 from your employer. You can inquire about it from your employer directly or through your company’s HR department.
  • By Mail: You can receive your W2 form by mail if you need it as a hard copy. If you can’t get it from your employer, you can request assistance from the IRS to send you a copy.
  • Online: An alternative way to obtain your W2 form is online. Visit the following web pages for more information: SSA (Social Security Administration) or IRS W2 transcript.

Frequently Asked Questions

Now that you’re familiar with all things W2-related, here are a few questions that may come to your mind:

What Happens if You Lost Your W-2?

You can request a copy from your employer or the IRS or access it online. You can also submit Form 4852; the substitute for W2.

What Happens if You Find an Error on Your W-2?

Ask your employer to file in another corrected form. If they fail to do so, contact the IRS by phone (800-829-1040) or schedule a visit at a TAC (Taxpayer Assistance Center).

What Happens if You Don’t Receive Your W-2 On Time?

If your employer doesn’t provide you with a W2 form on time, call the IRS (800-829-1040), visit a TAC, or submit Form 4852 instead of W2.

Wrapping Up

Understanding the W2 definition helps you comprehend your rights and responsibilities as an employee or an employee.

Knowing what a W 2 form is and what information you need to report also facilitates a more accurate filing of tax information. It protects you from misreporting and misclassification penalties

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