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In the United States, the W-2 employee, unlike the 1099 employee, is someone who works for an employer and receives a Form W-2, which details their earnings and the taxes withheld. This status is essential for both employers and employees as it governs taxes, benefits, and compliance obligations. With several changes impacting W-2 regulations in 2025, including tax adjustments, overtime eligibility expansions, and retirement benefit updates, employers and employees should be aware of new requirements.
A W-2 employee is formally employed by a U.S.-based company or organization. They are classified as employees (not independent contractors or freelancers), receive regular wages, and benefit from legal protections under U.S. employment laws. Key characteristics include:
Form W-2, also known as the Wage and Tax Statement, reports an employee’s total earnings and tax withholdings. Employers are required to provide a W-2 form to each employee by January 31 annually. Here’s a breakdown of W-2 copies and their uses:
Employees may sometimes receive multiple W-2 forms from a single employer, usually due to mergers or a change in employer identification numbers (EINs). In such cases, check with the employer to confirm accuracy. If multiple W-2s are received from different employers, employees must file each one on their tax return.
If an employee does not receive their W-2 by the deadline, they can contact the IRS for assistance in obtaining a copy.
One advantage of W-2 employment is access to various benefits and protections. These benefits include:
These benefits, which contractors typically do not receive, contribute to greater job security and financial stability for W-2 employees.
The IRS has implemented several inflation-based adjustments for the 2025 tax year:
W-2 employees should consider updating their W-4 form elections to reflect these changes, ensuring accurate tax withholdings throughout the year.
A significant change to the Fair Labor Standards Act (FLSA) overtime rules is set to take effect on January 1, 2025. Under this update:
Most salaried employees earning less than $1,128 per week will qualify for overtime pay if they work over 40 hours in a week.
The threshold for highly compensated employees will increase to $151,164 annually, ensuring that more salaried workers are eligible for overtime protections.
Starting in 2027, the salary thresholds will be adjusted every three years to reflect wage changes
Employers should review and update their payroll systems to ensure compliance, while eligible employees should confirm their overtime entitlements.
The SECURE 2.0 Act introduces several provisions that may impact W-2 employees’ retirement savings options:
IRS.
These provisions aim to boost retirement savings while ensuring transparency in income reporting.
W-2 forms apply to U.S.-based employees. For foreign employees working for U.S. companies, Form 1042-S may apply, which reports U.S. source income for non-residents. Non-resident employees working remotely for U.S. companies should typically pay taxes in their home country. However, if a tax treaty exists between the U.S. and the employee’s country, double taxation may be avoided. Employees should verify local tax obligations and whether their income is subject to U.S. withholding.
The upcoming 2025 changes for W-2 employees, from tax bracket updates to overtime eligibility expansions and revised retirement reporting, reflect ongoing adjustments to support fair wages and transparent tax practices. By staying informed and proactive, both W-2 employees and employers can ensure compliance and benefit from these evolving protections.
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