October 11, 2023
It's no surprise that the Internal Revenue Service (IRS) is embracing technology as our world becomes more digital. Starting in 2023 employers will need to adhere to new filing requirements for Forms 1099 and W-2. Let’s take a look at who will be affected by this mandate, how to file, and the important dates you should keep in mind.
Who Does This Mandate Apply To?
The new e-filing mandate impacts businesses that are obligated to issue Forms 1099 and W-2. This includes employers and third-party payroll providers. Here are the key parameters for forms filed on or after January 1, 2024.
- Threshold Reduction: The threshold for e-filing has been reduced from 250 returns to 10 returns. Previously, businesses were required to e-file if they had 250 or more returns of the same type. Beginning in 2024, if a business files 10 or more returns in a calendar year, they must e-file, regardless of the type of form.
- Aggregation of Forms: Under the new rules, the threshold is applied to the aggregate of all types of information returns. This means if the combined number of returns (like W-2, 1099-MISC, and 1099-NEC) equals 10 or more, the business must e-file.
- Example: If a business has 5 Forms W-2 and 5 Forms 1099-NEC, they will need to e-file because the combined total is 10 information returns.
- Corrections: If there's a need to file a corrected W-2 (Form W-2c), it doesn't count toward the 10-return threshold. However, it should be filed in the same format as the original. If the original W-2 was e-filed, the W-2c should also be e-filed.
- Corporations: The e-filing exception has been removed for corporation income tax returns reporting total assets under $10 million at the end of the taxable year.
- Partnerships: Partnerships are now required to e-file their returns if they:
- Have more than 100 partners.
- Must file at least 10 returns during the taxable year.
- Hardship Waivers: There are waivers available for businesses facing hardships in complying with the new e-filing mandates. If a business believes it would have difficulty adhering to these requirements, they should consult with the IRS about applying for an electronic filing waiver.
Steps for Compliance with the Mandate.
To effectively navigate the e-filing mandate, employers and businesses should follow these steps:
1. Obtain an EFIN (Electronic Filing Identification Number); If you haven't already done so it's necessary to acquire an EFIN from the IRS. This unique identifier is mandatory for filing.
2. Make sure your accounting or payroll software is updated and meets the e-filing requirements to stay compliant.
3. Gather all the information you need for Forms 1099 and W-2 including employee or contractor details, Social Security Numbers, or Taxpayer Identification Numbers as well as income and withholding information.
4. Submit your Forms 1099 and W-2 electronically using either the IRS e-filing system or an approved e-file provider. Remember to meet the deadline required for e-filing.
5. Keep copies of all filed forms and related documents for three years to ensure you have them available in case of an audit.
Not adhering to the electronic filing and payment obligations can lead to steep penalties. Should you submit a paper form when electronic filing is mandatory, you may face penalties for not filing the appropriate return or report for that specific tax category. Moreover, if you claim an overpayment on a paper-based tax form that was mandated to be electronic, any interest on that amount will only be applicable once it's electronically submitted.
To ensure a smooth transition and compliance with the regulations it's important to start updating your systems early, marking important milestones on your calendar. By doing so you'll not avoid penalties but also contribute to the gradual modernization of tax reporting in the United States. For advice and information, make sure to refer to official resources provided by the IRS. Additionally consider seeking guidance from tax experts or consultants when necessary.