A W-2 employee is a worker whose employer deducts taxes from their wages and reports their annual earnings to the IRS using a W-2 form. These employees are typically entitled to benefits and protections under labor laws.
What is a tax form W-2?
The W-2 form, also known as the Wage and Tax Statement, is a tax document used in the United States to report employee wages and the taxes withheld from their paychecks. Employers must provide a W-2 tax form to each employee and to the Internal Revenue Service (IRS) at the end of each year, detailing the employee's annual earnings and withheld taxes.
W-2 vs W-4 vs W-9
- Form W-2: Used by employers to report wages, taxable income, and tax withholdings for employees.
- Form W-4: Completed by employees to indicate their tax situation to their employer, determining the amount of federal income tax to withhold from their paychecks.
- Form W-9: Used by independent contractors to provide their social security number or taxpayer identification number and other tax information to entities that will pay them.
Are there multiple copies of Form W-2?
Yes. Different copies go to employees, employers, and the IRS:
- Copy A: Sent by the employer to the Social Security Administration (SSA).
- Copy B: Given to the employee to file with their federal tax return.
- Copy C: Kept by the employee for their records.
- Copy D: Retained by the employer for their records.
- Copy 1: Submitted to the employee's state, city, or local tax department, if applicable.
- Copy 2: Given to the employee to file with their state, city, or local tax return.
Where do you get an IRS Form W-2?
Employers are responsible for generating and distributing Form W-2 to their employees. Employees typically receive their W-2 forms by mail or electronically from their employers at the beginning of the year, usually by Jan. 31. Employers can use payroll software to create and file W-2 forms.
Do W-2 employees get benefits?
Yes, W-2 workers often receive various employee benefits as part of their compensation. These perks can be mandatory or optional.
Mandatory benefits
- Social Security and Medicare: Employers must withhold and contribute to Social Security and Medicare taxes.
- Unemployment insurance: Employers must pay state and federal unemployment insurance taxes.
Sometimes mandatory
- Workers’ compensations: Employers may be required to provide workers' compensation insurance to cover employees in case of work-related injuries or illnesses. Workers’ comp requirements vary by state. In some states, employers are only required to cover employees in certain industries, or if they have a certain number of employees.
- Health insurance: Many employers offer health insurance plans, which can include medical, dental, and vision coverage. The federal Affordable Care Act requires employers to provide qualifying health coverage to their eligible employees if they have at least 50 full-time equivalent employees.
Optional benefits
- Retirement plans: Employers may provide retirement savings plans, such as IRAs or 401(k) plans, often with matching contributions.
- Paid time off: Includes vacation days, sick leave, and personal days.
- Life and disability insurance: Employers may offer life insurance and short-term or long-term disability insurance.
- Education assistance: Some employers provide tuition reimbursement or financial assistance for continuing education.
- Flexible spending accounts: Allow employees to set aside pre-tax dollars for medical or dependent care expenses.
W-2 employee vs 1099 worker
“1099” refers to Form 1099-NEC (the tax form that replaced Form 1099-MISC for reporting taxable, non-employee compensation to the IRS in 2020). 1099 workers, also called freelancers or self-employed workers, are a different type of worker from W-2 employees in several key ways. Here are some of their main differences:
W-2 employee
1099 worker
Employment status
Employee
Independent contractor
Level of control
Employer controls how and when work is performed
More control over how and when work is performed
Tax withholding
Taxes withheld by employer
Responsible for their own tax payments and paying self-employment tax
Benefits
Typically eligible for benefits
Typically not eligible for employer-provided benefits
Schedule
Generally set by employer
Sets their own schedule
Reimbursement for expenses
May be reimbursed for job-related expenses
Responsible for their own expenses
Security and protections
More job security and protections under labor and employment laws
Generally works for their employer exclusively
Minimum wage and overtime
Eligible for minimum wage and overtime
Agreement does not have a defined end date (though many countries permit fixed term employment agreements)
What happens if you misclassify a W-2 employee?
Misclassification is serious. Misclassifying a W-2 employee as an independent contractor (or vice versa) can result in significant You may also be required to provide retroactive benefits to the misclassified employee.
Frequently asked questions about W-2 employees
What information is on a W-2 form?
A W-2 form includes the employee's annual wages, federal and state income tax withheld, Social Security and Medicare taxes withheld, and other compensation-related information.
What happens if a W-2 form is incorrect?
The employee should let their employer know as soon as possible. It’s up to the employer to issue a corrected form, known as a W-2c.
How are W-2 forms used for tax filing?
Employees use the information on their W-2 forms to complete their federal and state tax returns. The form details their earnings and the taxes already withheld, which helps determine if they owe additional taxes or are due a refund.
Can a W-2 employee also have a 1099 job?
Yes, an individual can be both a W-2 employee and a 1099 contractor, but the roles and responsibilities must be clearly distinguished, and taxes must be managed and paid correctly for each type of work.
What payroll taxes do employers have to pay?
Employers are responsible for paying FICA taxes, which include Medicare and Social Security tax, as well as federal and state unemployment taxes. They may also have to pay additional state and local taxes. When they run payroll, employers are also responsible for withholding other taxes from each employee’s paycheck on their behalf, including federal and state income tax and local taxes, when applicable.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.