W-2 employee

A W-2 employee is someone defined as a conventional employee under U.S. tax regulations. The name “W-2” comes from the form that employers must give an employee every year that lists how much the employee was paid and the tax withholdings. W-2 employees have payroll taxes taken out by the employer and, typically, these employees may receive benefits, employment protections, and steady income unlike independent contractors.

For small business owners, being able to identify and properly manage W-2 employees is an important part of tax compliance, avoiding misclassification fees, and building a reliable long-term workforce. With Homebase, for instance, you can automatically take care of W-2 payroll, tax filing and pay–stub distribution, making it easier for compliance for everyone involved.

What makes someone a W-2 employee?

W-2 employees are different from independent contractors in several significant ways. The most significant consideration is control: if you control how, when, and where they do a task, they are probably a W-2 employee. These employees are integrated into your business and its operations, follow your workplace rules and practices, and typically utilize tools/equipment that you provide.

FAQ:

1: What is the difference between a W-2 employee and a 1099 contractor?

A W-2 employee has taxes withheld by the employer and usually receives benefits like health insurance, paid time off, and retirement plans. In contrast, a 1099 contractor is an independent worker who handles their own taxes and doesn’t receive benefits from the company they work for. Contractors typically have more control over their work schedule and are paid for specific tasks rather than having an ongoing salary.

2: Do W-2 employees pay taxes?

Yes! W-2 employees pay taxes through automatic withholding by their employer. This means your employer takes care of deducting federal, state, and local income taxes, as well as Social Security and Medicare taxes. The amount withheld is reported to the IRS and is shown on your W-2 form at the end of the year.

3: Can a part-time worker be a W-2 employee?

Yes, part-time workers can absolutely be W-2 employees. The key difference between full-time and part-time employees is typically the number of hours worked. Part-time W-2 employees still receive the same benefits and protections as Self employed , but their hours and wages are adjusted accordingly.

4: Are W-2 employees eligible for unemployment benefits?

Yes, W-2 employees are eligible for unemployment benefits if they lose their job, as long as they meet the requirements in their state. Employers pay into an unemployment insurance program for their W-2 employees, which funds unemployment benefits.

5: Do W-2 employees have to file taxes?

Yes, even though your employer withholds taxes throughout the year, you must file a tax return to reconcile your tax payments. The W-2 form you receive shows how much you’ve earned and how much was already paid in taxes. You can use this form to complete your tax return. If you paid too much in taxes, you may be entitled to a refund!

6: How do W-2 employees get paid?

W-2 employees are typically paid either weekly, bi-weekly, or monthly, depending on the company’s payroll schedule. The employer issues a paycheck or direct deposit, with taxes already deducted.

7: Can a W-2 employee be a contractor?

In some cases, an individual can be both a W-2 employee and a 1099 contractor. For example, they might work as a W-2 employee in one role (e.g., part-time employee) and do freelance work on the side as a 1099 contractor. However, the IRS has strict guidelines for what constitutes being an employee vs. a contractor, and misclassification can lead to tax issues.

Read Also : 1099 NEC Form  | 147 c Letter | 401 a-Plan