W-2 vs. W-4: How to Manage Your Taxable Income

Learn the difference between a W-2 to W-4.

When you work for an employer, your company is responsible for withholding a portion of your paycheck for federal taxes, as well as reporting your income and withholding to the government for tax purposes. But with all the different tax forms, it can be difficult to remember the difference between a W-2 and a W-4.

Form W-4 helps your employer calculate how much to withhold, and Form W-2 tells you and the IRS how much you earned and how much was withheld during the year. Understand how to use these IRS forms so that you can ensure you file your taxes correctly.

What Is a W-4?

The W-4 is the form that your employer uses to determine how much to withhold from your paychecks. The form gives your employer two vital pieces of information: your filing status — married or single — and the number of allowances you claim. Each allowance you claim reduces the amount of your paycheck that is subject to withholding. If you have too much withheld, you’ll get the excess back in the form of a tax refund.

Find Out: How to Fill Out a W-4

Though you might be tempted to claim extra allowances on your W-4 form to reduce your withholding, don’t. At the end of the year, you’ll have to make up any shortfall when you file your taxes. And, if you fraudulently claimed extra allowances, you could face an additional $500 penalty from the IRS.

You can find out how many allowances you should claim or how many exemptions you should claim by using the IRS Withholding Calculator.

Updating W-4 for Your Income Tax Return

You can, and should, update your W-4 over time as your personal circumstances change.

Examples of when you need to file a revised W-4 include:

  • Getting married, as you might need to change your filing status.
  • Getting divorced or if your spouse dies, as you might need to change your filing status.
  • Having or adopting a child so you can claim at least one additional allowance, if not more, for certain child-related tax credits.
  • Ceasing to claim a child as a dependent so you can reduce the number of allowances you claim.
  • Starting a second job or side hustle; You can request an additional amount to be withheld from your main job so that you don’t have to make estimated tax payments.

Once you give your employer the updated Form W-4, your employer must use the updated information to calculate your tax withholding no later than the start of the first pay period that ends 30 days later.

What Is a W-2?

When filing your taxes, you’ll need to include income information found on your W-2. At the end of the year, your employer sends both you and the government a copy of your W-2 form so that all applicable parties have correct information concerning your taxable income, as well as how much was withheld for the year. For example, if your employer withheld $8,000 for federal taxes, your W-2 will show $8,000 in federal withholding, so the IRS can calculate if you owe taxes or are owed a tax return.

Your W-2 won’t match any amount on your W-4 because the W-4 itself doesn’t state a specific total dollar amount to withhold — just the factors that help your employer calculate withholding. You can check your last pay stub for the year, however, to make sure the money withheld adds up to what is reported on your W-2.

You should receive your W-2 by the end of January of the following year. That means for the 2017 calendar year, you should receive your W-2 from your employer by Jan. 31, 2018.

Learn: What to Do If You Lost Your W-2