What's the Difference Between W-2 and W-4 Forms?

Tax forms are complicated, especially for those new to the workforce or business owners looking to expand their teams. Two common forms that often raise questions are the W-2 and W-4 forms.

After reading this article, you'll see the difference between these forms and the advantages of adding your ITIN (Individual Taxpayer Identification Number) workers to your payroll.

W-2 vs. W-4 Forms

W-2 Form:

The W-2 form is an annual statement that employees receive at the end of the year, typically by January 31st.
It provides a comprehensive summary of your earnings, including wages, Social Security wages, and Social Security tax payments.
It also shows the amount of federal and state income taxes withheld from your paychecks throughout the year.
You use the information on your W-2 to prepare your personal 1040 tax return.

W-4 Form:

Unlike the W-2, the W-4 form is filled out when you start a new job or experience a significant life event (e.g., marriage, having a child).
On the W-4, you declare the number of allowances you wish to claim, which affects the amount of income tax withheld from your paychecks.
It determines how much of your earnings will be remitted as a prepayment toward your income taxes.

Can an ITIN Be Used on a W-2 Form?

Yes, an ITIN can be used on a W-2 form.

It serves as an alternative for a Social Security number and should be entered in the same box where a Social Security number would be provided.

The IRS assigns ITINs solely for the purpose of remitting taxes, making it a valid and essential identifier for individuals who do not have a Social Security number.

What are the Disadvantages for Employers Adding ITIN Workers to Payroll?

The biggest disadvantage for business owners when they add their ITIN workers to their payroll is…

Now, they have to pay employer taxes.

When you officially put ITIN workers on your payroll, you become responsible for various employer taxes, such as unemployment insurance and Social Security tax matching.

However, adjusting wages to account for these additional costs can help maintain your budget.

What are the Benefits of Adding ITIN Workers to Your Payroll?

Now, let's explore the three key benefits of adding ITIN workers to your payroll:

Compliance with the Department of Labor - Having workers on your payroll ensures compliance with labor regulations. Avoiding off-the-books employment prevents fines and penalties from the Department of Labor, safeguarding your business's reputation and financial assets.
Workers' Compensation Insurance - To provide adequate protection for your employees in case of work-related injuries or accidents, you must have workers' compensation insurance. Having workers officially on your payroll ensures they are covered by this vital insurance, preventing a financial knockout punch.
Elimination of Cash Payments - In today's digital world, many businesses prefer electronic transactions over cash payments. By adding ITIN workers to your payroll and utilizing a payroll debit card solution, you can pay them with direct deposit, just like any other employee.

All in all, understanding the differences between W-2 and W-4 forms is crucial for both employees and employers.

Additionally, considering the advantages of adding ITIN workers to your payroll, such as compliance with labor laws, workers' compensation insurance, and simplified payment processes, can be beneficial for your business.

At Baron, we specialize in managing payroll, including ITIN workers, efficiently and competently.

The best part? Our ITIN worker package is FREE with all of our payroll packages.

If you're considering adding ITIN workers to your payroll, please use our instant price calculator and get detailed pricing now without talking to a salesperson.

Do you want to add your ITIN workers to your payroll? Check out our ITIN package that’s included for FREE with our payroll services.