In the U.S. tax system, every person who earns income is categorized as either an employee, independent contractor, freelancer, or business owner, and they need to pay taxes. However, knowing how, when, and how much taxes to pay can be tricky.
It is vital for the employees to stay informed about what they need to submit every tax season. Employees need to fill out the correct tax forms. That is why it is necessary to get acquainted with the tax forms. One of the most essential tax forms for U.S. employees is the IRS form W-2.
What is a Tax Form W-2?
W-2 forms are required forms that go along with a taxpayer’s federal income tax return. In the United States, a W-2 is a form given to employees by their employer to report their taxable compensation and allowances. The W-2 is one of the most important forms because it is used to calculate the federal tax withheld from paychecks, and it is also used to file a tax return. In addition to the personal information of the taxpayer, the W-2 report includes information about the employer’s tax obligations on wages, pensions, bonuses, and other taxable income.
Employers are required to electronically file W-2 forms with the Internal Revenue Service (IRS) to report their employees’ wages and tax contributions. W-2 forms are also used to report the amount of taxes withheld from employees’ paychecks. W-2s are also used to file tax returns, often to claim a refund from the IRS.
What is a W-2 Employee?
W-2 employees are those who are considered full-time employees of an organization that completed the W-4 form. They are also known as wage earners and salary workers. W-2 employees receive a W-2 form each year to report their income and are subject to payroll taxes. A W-2 employee is not a sole proprietor, they are not a 1099 employee, and they are not a shareholder. The W-2 form is completed by your employer, and all of your tax information, as well as any required deductions, will be filled out on it.
What are the Benefits of W-2 Employees?
If you are an employee, you will receive a W-2 form, which means that you will receive half of your annual Social Security and Medicare taxes back from your employer. There are more benefits to an employee than just a tax break, of course.
W-2 employees are eligible for retirement benefits and may also receive other types of benefits, such as health insurance. Employees are also entitled to a certain amount of paid sick leave. If you are a contractor, you yourself need to pay the employer’s share.
In addition, W-2 employees have access to:
- Workers’ Compensation insurance
- Unemployment benefits
- Quicker paycheck delivery
- Being part of the team
- Operating on a written contract
- Less exposure to audits
Hiring New Workers
Employers can choose to use a Form 1099 or a Form W-2 to pay their workers. Form 1099 is used to report payments made to non-employees, while Form W-2 is used to report payments made to employees. It’s important to understand the tax implications of each form and make the right choice for your business. However, employers need to be careful not to misclassify an employee as a contractor as it can lead to significant penalties.