Withholding at hire, reporting at year-end
W-4 and W-2 forms are both IRS tax forms that involve tax withholding, but they serve different functions at different moments in your payroll process.
Your new employee fills out the W-4 when they're hired or when they want to adjust their withholding. At year-end, you generate the W-2 to report what you paid and how much you withheld from your employee's paycheck.
You collect the W-4 at hiring. You generate the W-2 at year-end. Here's what each one does.
SurePayroll By Paychex calculates withholding from W-4 elections every pay period and generates W-2s at year-end. You enter employee elections once, withholding and reporting run from there.
What is a W-4 form?
The W-4 (Employee’s Withholding Certificate) is the form your employee fills out to tell you how much federal income tax to withhold from their paycheck. Many states have their own withholding certificate that you collect along with the federal W-4 at hiring. If your state has a state income tax, check whether it requires a separate state form. Some do, some use the federal W-4, some have no requirement at all.
You collect the W-4 when you hire a new employee, before you pay them for the first time. The information your employee provides determines how much federal income tax you withhold from their gross pay.
The W-4 captures the elections that shape withholding for the tax year: filing status, marital status, number of dependents, income from a second job, and any additional withholding your employee wants taken out. Those elections apply to every paycheck you run until your employee submits an updated form.
SurePayroll calculates federal income tax withholding from W-4 elections automatically. You enter the employee's elections once during setup, and withholding runs from there.
The form also requires your employee’s Social Security number, which connects the withholding record to their personal tax account. When you receive the completed W-4, enter the information into your payroll system. The IRS requires you to keep W-4 forms on file for four years after the tax is due or paid. You do not submit W-4s to the IRS, but the IRS may request them during an audit.
What is a W-2 form?
You generate the W-2 form for each employee after you process their last paycheck for the year. It reports total wages, income tax withheld, Social Security tax, Medicare taxes, and state and local taxes where applicable. This is the complete payroll tax record for each employee across the full calendar year.
If you run an S-corp and pay yourself a salary, you generate a W-2 for yourself at year-end. Same form, same January 31 of the following year deadline, same SSA filing. You just happen to be both the employer generating it and the employee receiving it.
The W-2 is formally called the Wage and Tax Statement. Your employee uses it to file their personal tax return. It shows what they earned and what was withheld and submitted throughout the year. The Social Security Administration uses it to track earnings for Social Security and Medicare records.
Distribute W-2s to your employees and file copies with the Social Security Administration (SSA) by January 31.
W-2 vs. W-4: Key differences
1: Who fills it out. Your employee completes the W-4. You generate the W-2.
2: When it is used. Use the W-4 when you hire an employee, and again if they make an update. Generate, distribute, and file the W-2 at year-end, by January 31.
3: What it does. The W-4 controls payroll tax withholding going forward. The W-2 reports what already happened.
Your employee controls the withholding elections, and you execute those choices. You verify the numbers and distribute the W-2 by January 31 of the following year.
You collect the W-4 before the first paycheck; you deliver the W-2 after the last paycheck of the year.
How W-4 and W-2 work together
The W-4 determines what you withhold from each paycheck. The W-2 reports what you withheld all year. When you set up W-4 elections correctly at hiring, withholding runs consistently every pay period.
Your employees provide their W-4 elections. You enter that information into your payroll software, which withholds federal income tax, Social Security, and Medicare based on those elections. When you execute their elections, withholding runs exactly as your employees set it up.
You translate W-4 elections into withholding, run it consistently, and report it on the W-2. Your employee controls the elections. You control the execution.
Payroll taxes include federal income tax, Social Security, and Medicare. All three run through the same withholding process and appear on the W-2 at year-end.
SurePayroll calculates withholding every pay period based on the W-4 elections you entered — federal income tax, Social Security, Medicare — and tracks year-to-date totals for W-2 reporting.
“We really had a hard time figuring out how to compute payroll tax but your system made it easy for us.” — Franciela, Trustpilot
The W-4 as a living document
Your employee can submit an updated W-4 whenever their circumstances change: marriage, divorce, a new child, a second job. When you receive a new form, update your payroll system with the new elections. Future paychecks reflect the new elections, and the W-2 captures the full year.
Your responsibility at each stage
W-4 at hiring. W-2 at year-end.
Before you run payroll for a new employee, collect their completed W-4. Their filing status, number of dependents, and any additional withholding determine how much federal income tax you withhold going forward. Enter their elections into your payroll system and keep the W-4 on file.
When your employee submits an updated W-4 during the year, enter the new elections before your next payroll run. Withholding adjusts from that point forward. It does not apply retroactively to paychecks already processed.
W-4 elections you capture at hiring determine what appears on the W-2 at year-end.
After December 31, generate the W-2 for each employee. Distribute it to your employee and file copies with the SSA. Employee distribution and SSA filing both fall on January 31 of the following year. Your employee uses the W-2 to file their personal tax return.
The W-4 process guide walks through collection, entry, and record-keeping step by step.
The W-2 guide for small business owners covers generation, distribution, and SSA filing.
How payroll services handle W-4 and W-2
You enter W-4 elections once during employee setup.
SurePayroll By Paychex calculates withholding from W-4 elections every pay period and generates W-2s at year-end automatically. You enter employee elections once. Withholding and year-end reporting run from there.
“Setting up the SurePayroll account was easy, especially with the help of [my rep] who walked me through the various steps. She always responded promptly to my questions by phone or email and she even walked me through running the first payroll. A++ This definitely simplifies the process of complying with state and federal requirements.” — Phil, Google review
This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up to date
