Updated: Jul 7, 2022
Tax forms can be confusing but as an employer you’re expected to know everything. Here are a few quick tips to help you keep some of these straight.
A W-2 is an earnings statement provided to an employee at year end. The W-2 shows all taxable earnings as well as local, state and federal taxes paid throughout the year. The employer is obligated by law to provide a W-2 to each employee before the deadline of January 31st.
Copies of all W-2s are provided to the IRS along with a summary form showing the number of W-2s submitted and their total sum, this summary form is called a W-3. The employer is required to submit their W-3 and copies of all W-2s to the IRS by February 28th each year.
A W-4 is a form completed by a new or existing employee which allows the employee to choose how they would like to have their taxes deducted from their paychecks. The employee enters the number of exemptions they would like their income taxed on. It also provides for additional dollar amounts to be withheld, such as 0 exemptions with a $25 additional withholding. This would take the maximum amount of taxes plus an additional $25 each pay period. An employee may claim as many or as few exemptions on their W-4 as they would like, however, its does not affect their final tax bill at the end of the year and an employee can end up with a refund or owing taxes bases on improperly claiming exemptions on the W-4.
An exemption is something that exempts you from paying taxes or limits your tax bill, therefore the more exemptions entered on the W-4, the less taxes will be taken out and the more money the employee takes home each pay period.
A W-9 is not an employment form but one used for contractor payments and other non-employee compensation. As you would have a new employee complete a W-4, so should you have a new contractor complete a W-9. A W-9 gives the name, address and Tax ID number of the contractor to the payor. The purpose of this form is to provide all the necessary information the business will need in order to file a 1099 at the end of the year.
A 1099 is provided to contractors much the same as a W-2 is provided to an employee. However, there is a $600 threshold, under which, businesses are not obligated to provide a 1099 at all. In other words, if the contractor was paid less than $600 during the entire year, no 1099 is required.
Copies of all 1099s are submitted to the IRS with a summary form showing the total number of 1099 forms submitted as well as the total sum of all 1099s. This summary form is called a 1096.
Businesses are legally responsible to provide 1099s to contractors by January 31st of the following year. And to submit their 1096 along with copies of all 1099s to the IRS by February 28th.
I hope this article has been helpful to you in making the right decisions for your business.
If you have any questions about bookkeeping or are considering hiring a bookkeeper for your business, please feel free to contact us at email@example.com.
About the Author I have been doing bookkeeping for about 20 years and concurrently held a position as the head of HR for a small management firm for 14 of those years.
Currently, I am an owner of Peggy’s Bookkeeping Service with my partner and mother, Peggy. Peggy’s Bookkeeping is a small, family-owned bookkeeping service based in Clearwater, FL. You can visit our website at www.peggysbookkeeping.com.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.