Hiring and paying U.S.-based employees involves more than just compensation and capabilities; it comes with tax responsibilities and regulatory complexity. For global companies expanding into the U.S. talent market, the W‑2 form is one of the most essential and often misunderstood components of payroll compliance.
Whether you are hiring full-time employees or managing independent contractors, understanding the W‑2 form is critical to staying compliant with U.S. labor laws and IRS regulations. Errors such as misclassification, late filings, or incomplete information can cost your business thousands in penalties and expose you to permanent establishment risk.
This guide breaks down the W‑2 form, how it’s used, and what you need to know if you’re expanding your workforce in the United States. We’ll also show you how a solution like Multiplier’s Contractor of Record (COR), also known as Agent of Record (AOR), can take the burden of compliance off your shoulders.
Companies like Accelerator LSP saw a 75% reduction in payroll admin time and 30% cost savings by unifying global payroll with Multiplier.
What is the W‑2 form?
The W‑2 form, officially known as the “Wage and Tax Statement,” is a mandatory document issued by U.S. employers to report wages paid to their employees and the taxes withheld during the year. It’s sent to both the employee and the Internal Revenue Service (IRS) every January for the previous calendar year.
In simple terms, “The W‑2 is the official form used by U.S. employers to report wages and withholdings to the IRS and Social Security Administration.”
It includes:
- Wages earned
- Federal, Social Security, and Medicare tax withholdings
- State/local income taxes (if applicable)
- Benefits like 401(k), health insurance contributions
- Employer and employee identification numbers
This form is intended exclusively for employees and should not be used by independent contractors, freelancers, or consultants.
W‑2 vs. 1099: The classification divide
One of the most common (and costly) mistakes businesses make is confusing W‑2 employees with 1099 independent contractors. The IRS has strict rules for classification, and if you misclassify, you could face serious fines and legal consequences. So, let’s examine the differences between W-2 and 1099 below.
Feature | W‑2 employee | 1099 contractor |
Control | Employer controls schedule/tasks | Contractor sets own terms |
Taxes | Withheld by the employer | Contractor handles own taxes |
Benefits | Often provided | Not provided |
IRS form | W‑2 | 1099-NEC |
Employment Law Coverage | Yes (FMLA, overtime, etc.) | No |
Incorrectly classifying a worker as a 1099 contractor when they behave like a W‑2 employee can trigger:
- Back taxes
- Penalties up to $1,000 per violation
- Interest on unpaid tax
- Lawsuits from misclassified workers
TIP: Hiring independent contractors in the U.S.? Multiplier’s COR ensures every contract, classification, and payment aligns with IRS standards so that you don’t accidentally issue a W‑2 when you shouldn’t.
What information is included in a W‑2 form?
The W‑2 is made up of multiple boxes that provide detailed information about the employee’s earnings and withholdings.
Key items include:
- Employee name, address, and SSN
- Employer Identification Number (EIN)
- Total wages and tips
- Federal income tax withheld
- Social Security and Medicare withholdings
- State/local income tax (if applicable)
- Non-cash compensation or benefits (401k, insurance, etc.)
Find the latest general instructions for form W-2 here.
Who needs to issue a W‑2 form?
Any U.S. business or foreign business with a U.S. legal entity that has hired employees must issue a W‑2 form for each of them by January 31st of the following year.
Employers must:
- File with the IRS and Social Security Administration (SSA)
- Send a copy to the employee
- Maintain records for a minimum of four years
Penalty alert: Inaccurate W‑2s can cost businesses up to $270 per form in penalties.” The IRS doesn’t take filing delays or omissions lightly.
The W‑2 filing process: Step-by-step
The W-2 filing process is listed below:
Step 1: Collect employee data
Ensure you have accurate details like SSN, address, wage history, and tax elections.
Step 2: Generate W‑2
Use payroll software or a certified payroll partner to calculate and populate the form.
Step 3: File with IRS and SSA
Submit W‑2s through electronic filing systems or approved vendors.
Step 4: Distribute to employees by January 31
Employees use this form to file their personal tax returns.
Step 5: Maintain records
Keep copies of filed W‑2s and supporting documents for at least 4 years.
How Multiplier helps
Multiplier automates every step of the W-2 process through its Contractor of Record (COR) platform, particularly for remote and global teams. From data collection to secure filing, we simplify it all.
Managing contractors: When you don’t need a W‑2 form
If you’re hiring a true independent contractor, such as a freelance designer or an overseas consultant, you should not issue a W‑2 form. Instead, the correct tax form is the 1099-NEC.
However, the nature of the contract, payment terms, and working relationship must clearly reflect independent contractor status. If the individual:
- Works under your direct supervision
- Adheres to your set work hours
- Uses your internal tools and systems
That’s where a COR helps. CORs like Multiplier manage contracts, invoicing, and classification to ensure you stay compliant without misclassifying someone as a contractor when they should be a W‑2 employee.
Global workforce considerations: W‑2s and remote hiring
Whether you’re a U.S. business expanding abroad or a foreign company hiring U.S.-based talent, W‑2 obligations still apply if your team includes U.S.-based employees.
Employee or Contractor?
Whether you’re hiring a U.S.-based software engineer as a full-time employee or engaging a freelance designer, compliance starts with proper classification. Multiplier supports both models with:
- W‑2 filings through the EOR platform
- 1099 contractor compliance through our COR platform
DB Results, an Australian-based firm, hired over 100 employees in the Philippines in 10 months using Multiplier, with no payroll delays and no compliance issues. With Multiplier’s EOR handling their filings and contracts, they expanded fast without friction.
Common W‑2 mistakes to avoid
Even experienced HR teams can make costly errors. Here’s what to double-check:
- Wrong Social Security Number (SSN)
- Incorrect wage reporting
- Missing benefit information (e.g., 401k contributions)
- Late filings (beyond Jan 31)
- Issuing 1099s for W‑2 employees
Note: Download W‑2 Compliance Checklist
Why global companies use Multiplier for W‑2 and payroll compliance
Hiring in the U.S. or scaling globally? Multiplier makes payroll compliance easy:
- Simplified onboarding
- Accurate classification (W‑2 vs contractor)
- Automated W‑2 filings
- Compliance in 150+ countries
- Unified platform for HR, tax, and legal needs
Customer spotlight:
Akra, a Germany-based company, hired consultants in Canada through Multiplier.
Results: 1,180+ hours saved, $140K in overhead eliminated.
Conclusion: W‑2 compliance made simple
The W‑2 form isn’t just a piece of paper; it’s the foundation of your U.S. payroll compliance. And with rising risks of misclassification and global expansion, it’s never been more important to get it right.
Whether you’re hiring U.S.-based employees or managing independent contractors, Multiplier’s Employer of Record and Contractor of Record platforms help you do it all accurately, efficiently, and compliantly.
Book a demo today to see how Multiplier simplifies U.S. hiring, tax compliance, and W‑2 filings so you can focus on building a world-class team.
FAQs
What is a W‑2 form used for?
To report employee wages and taxes withheld to the IRS and Social Security.
How is a W‑2 different from a 1099?
W‑2 is for employees; 1099 is for independent contractors.
Who prepares W‑2 forms?
Employers (or their payroll providers) generate and file W‑2s.
Do I need a W‑2 if I’m self-employed?
No. Self-employed individuals receive 1099 forms or handle their own taxes.
Can Multiplier issue W‑2s for my U.S. employees?
Yes. As your Employer of Record, Multiplier handles W‑2 filings, payroll, and compliance from start to finish.
