W-2 employment represents the traditional employment model in today’s diverse labor market, defining the conventional employer-employee relationship. W-2 employees are individuals who are formally employed by a company or organization, and whose income tax is withheld by their employer. The employer has specific legal and financial obligations towards the employee. Employers file form W-2 with the IRS to report an employee’s annual wages and the amount of taxes withheld from their paycheck.
The employer’s responsibility in this relationship includes not only withholding and paying taxes but also adhering to labor laws and providing a structured work environment, often with certain benefits. This contrasts with 1099 workers, or independent contractors, who are responsible for paying their own taxes and generally do not receive the same benefits and protections.
As W-2 employees, individuals are entitled to certain benefits and protections, such as unemployment insurance, Social Security and Medicare contributions and worker’s compensation. They are protected by various labor laws, including minimum wage, overtime pay and workplace safety regulations. Some employers will also offer access to health insurance, retirement plans and paid time off.
Although there is less flexibility when compared to independent contacting work, W-2 employment offers steady income, certain benefits and legal protections and makes tax filing simpler. It remains the backbone of the traditional working relationships between employers and employees.
Speak with an accountant at Henson & Murtha CPAs for more information.