A W-2 employee is a formally employed individual working for a company or organization in the United States.
W-2 employees are entitled to specific benefits and protections under U.S. law and are subject to tax withholdings such as Medicare and Social Security. W-2 employees receive an annual W-2 tax form to report their earnings and tax withholdings.
What is a W-2 tax form?
Form W-2 is a tax document employers must provide to their employees, detailing their annual earnings, Social Security contributions, Medicare contributions, and federal and state income tax withholdings. Employees use this information to file their tax returns accurately with the Internal Revenue Service (IRS).
Also called a Wage and Tax Statement, Form W-2 reports an employee’s income from the year prior and how much tax their employer withheld. An employer is required to file a W-2 for any employee paid $600 or more in wages for the year or any employee from whom they withheld income, Social Security, or Medicare tax.
There are multiple W-2 copies, which include the following:
- Copy A goes to the Social Security Administration.
- Copy B is for filing with the employee's federal tax return.
- Copy C is for the employee's records.
- Copy D is for the employer's records.
- Copy 1 is for the employer to file with the city, state, or locality if asked to do so.
- Copy 2 is for the employee to file with the city, state, or locality if asked to do so.
Employers must send out W-2s to employees by January 31 each year.
Differences between 1099 vs. W-2 employee
W-2 and 1099 forms are essential documentation for taxpayers to complete during tax filing season. The key difference between a W-2 employee and 1099 employee lies in their employment relationship and the taxes withheld.
A W-2 employee is formally employed by a company or organization. A W-2 employee is eligible for employment benefits like health insurance, paid time off, and unemployment. The employer withholds income taxes, Social Security, and Medicare from the employee’s paycheck, and the employee receives a W-2 form to report their income and taxes withheld.
In contrast, an individual receiving a 1099 is technically a non-employee, such as an independent contractor or self-employed professional. They are not entitled to employment benefits and are responsible for paying their own taxes. They receive a 1099 form to report their income instead of a W-2.
W-2 employee benefits
W-2 employee benefits are non-monetary compensation employers provide their W-2 employees beyond regular wages. W-2 employees enjoy a range of statutory employee benefits, including the following:
- FICA (Medicare and Social Security). FICA taxes support the nation-backed retirement fund, public health insurance for people over 65, and disability and survivor benefits.
- Workers’ compensation. This provides income support and covers medical expenses and rehabilitation costs for employees who can’t work due to a job-related injury or illness.
- FUTA. FUTA, or federal unemployment taxes, provide income support for individuals who are unemployed or have lost their jobs but are willing and able to work.
- Family and Medical Leave Act (FMLA) unpaid leave. This guarantees qualifying employees up to 12 weeks of job-protected, unpaid annual leave for family and medical reasons.
- Affordable Care Act (ACA) health insurance. Organizations who employee 50 or more full-time employees are required to make affordable health insurance coverage available to their full-time employees.
U.S. employers must also adhere to state-level statutory requirements for their W-2 employees, which vary from one jurisdiction to the next.
Read more: Required Employee Benefits in the U.S.
W-2 employee FAQs
Below are answers to common questions about W-2 employees and W-2 forms.
Is a W-2 employee full-time?
A W-2 employee can be full-time, part-time, or temporary. The W-2 classification refers to the employee’s tax status, not their work hours. W-2 classifies the individual as an employee for tax purposes, and they receive a W-2 form from their employer at the end of the tax year.
Is a W-2 employee salaried?
A W-2 employee can earn either a salary or hourly wage. The W-2 classification refers to the employee’s tax status, not their pay structure.
What is a W-2 vs. W-4 vs. W-9?
There are fundamental differences and purposes between Form W-2, Form W-4, and Form W-9.
A W-2 is a form that employees receive from their employer that details their income and tax withholdings from the previous year. A W-2 is crucial for filing accurate tax returns every year.
A W-4 is a form that employees complete and submit to their employers when they begin a new job or their personal situation changes. A W-4 includes information about the employee’s filing status and withholdings to help the employer determine the appropriate amount of tax withholding on paychecks throughout the year.
A W-9 form verifies the taxpayer identification information for contractors, freelancers, vendors, and other non-employees. W-2 employees should not fill out W-9 forms, or risk employee misclassification. The W-9 collects the Taxpayer Identification Number (TIN) of the non-employee receiving payments to determine their income reporting and withholding.
Can an employee file taxes without a W-2 form?
A U.S. employee is a taxpayer and must file their tax return. If an employee does not get a W-2 from their employer or receives an incorrect form, they can use Form 4852 as a substitute when filing their taxes.
Can an employee file taxes with two W-2 forms?
An employee may file taxes with multiple W-2 forms if they receive W-2s from more than one employer from the previous tax year. For example, if three companies employed an individual in one year, the worker would receive three W-2 forms for filing their taxes that year.
An employee typically does not receive multiple W-2 forms from the same employer. The exception is if the business was acquired and the Employer Identification Number EIN changed.
Read More: The Complete Guide to Payroll Tax
Do foreign employees need W-2s?
In general, the country where an employee primarily lives and works determines their tax residency.
However, foreign employees working for a U.S. company receive a Form 1042, officially called the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, instead of a W-2 for U.S. tax reporting purposes.
Some foreign employees are eligible for exemptions from federal income tax withholding because of certain tax treaties.
When hiring international talent, use a Form W-8BEN. This tax document identifies the status of a foreign worker as a non-U.S. citizen and establishes the appropriate tax reporting and withholding for the entity providing them income. Request a W-8BEN from a foreign employee if they meet the following requirements:
- They are not a U.S. citizen
- They are not a U.S. resident
- They do not have a green card
- They performed the work outside of the U.S.
- They are the beneficial owner of the income provided
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. You should contact your attorney or tax advisor to obtain legal and/or tax advice with respect to your particular situation. Only your individual attorney or tax advisor can provide assurances that this information—and your interpretation of it—is applicable or appropriate to your specific situation. All liability with respect to actions taken or not taken based on this information is hereby expressly disclaimed. All content is provided "as is," and Velocity Global makes no representations or warranties concerning this information.
