Payroll in Practice: 7.3.2023

Question: This year the IRS released rules reducing the threshold at which information returns must be electronically filed. How does the change affect the filing of payroll related returns such as Form W-2 and Form 941?

Answer: In July of 2019, Congress passed, and the president signed, the Taxpayer First Act. The act reduced the number of tax and information returns a taxpayer may file without being required to file electronically. Two years later, in July of 2021, the IRS published Notice of Proposed Rule Making REG-102951-16. The final regulation, T.D. 9972, was released in February 2023.

The proposal would have reduced the threshold at which electronic filing is required from 250 forms, applied to each form separately, to an aggregate of 100 forms for forms filed in 2022. The threshold would be further reduced to an aggregate of 10 forms for forms filed in 2023.

The final rule kept the threshold at 250 for each form separately until the January 1, 2024, effective date but decreased the threshold to an aggregate of 10 forms for 2023 forms filed in 2024.

For example, under the current rules, a taxpayer could paper file 175 Forms 1099-NEC, Nonemployee Compensation; five corrected Forms 1099-NEC; 220 Forms 1099-MISC, Miscellaneous Information; eight corrected Forms 1099-MISC; 230 Forms W-2C, Corrected Wage and Tax Statements; and 200 Forms 1095-C, Employer-Provided Health Insurance Offer and Coverage. The taxpayer could file those forms electronically, but e-filing would not be required for any of them.

Under the final rule, for 2023 forms filed in 2024, if a taxpayer is required to file at least 10 forms of any type – e.g., income tax and returns, employment tax returns, excise tax returns, etc. – during a calendar year, e-filing is required for all the forms.

For example, during 2024, an S Corporation is required to file one 2023 Form 1120-S, U.S. Income Tax Return for an S Corporation; two Forms W–2, Wage and Tax Statement; two Forms 1099–DIV, Dividends and Distributions; one Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return; and four Forms 941, Employer’s Quarterly Federal Tax Return. Because the company is required to file 10 returns during the calendar year 2024, it is required to file all the forms electronically.

Corrected information returns are not counted when calculating the aggregate to determine if the taxpayer is required to file electronically. However, corrected information returns must be filed electronically if the original return was submitted electronically.

A corrected information return corresponding to an original information return that was permitted to be filed on paper and was filed on paper must be filed on a paper information return. A correction to an original information return that was required to be filed electronically that was filed on paper, must be corrected electronically.

Under certain circumstances, a taxpayer might obtain a waiver or exclusion from electronic filing. A waiver may be granted for undue hardship such as a significant difference between the cost of filing electronically and filing on paper. An exemption may be granted to promote efficient tax administration or for filers for whom using the technology conflicts with their religious beliefs. An exclusion is provided if the IRS systems do not support e-filing.

There are several systems for filing returns electronically:

• FIRE, Filing Information Returns Electronically, is used for information returns like the Form 1099 series.
• AIR, Affordable Care Act Information Returns, is used for the Form 1094 and 1095 series.
• MeF, Modernized e-File, is used for income, excise, and employment tax returns.
• IRIS, Information Return Intake System, is used for information returns like the Form 1099 series.
• BSO, Social Security Administration Business Services Online, is used for filing Form W-2.

FIRE, AIR, and MeF and require software to produce the file for filing. IRIS and BSO are free services that do not require special software. The IRS systems require that the user obtain a transmitter control code (TCC). BSO requires registration. TCC applications should be submitted at least 45 days before the filing due date. Taxpayers required to file returns may choose to register to file directly with the IRS or SSA or engage with one or more third-party providers or EROs (Electronic Return Originators) who have access to these systems to file the returns.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.