Apr 28, 2023

The IRS released final regulations on February 21, 2023, which will affect virtually all employers who file employment tax information forms such as Forms 1099-series, Forms W-2, and Affordable Care Act Forms 1094-B/C and 1095-B/C, among others. 

These final regulations are part of the Taxpayer First Act (TFA) enacted on July 1, 2019, which generally reduced the number of returns that can be filed in paper form. The final regulations adopt the electronic-filing threshold of 10 for information returns required to be filed on or after January 1, 2024.

The IRS explained that the electronic filing mandate is necessary because the agency receives nearly four billion information returns per year. In 2019, the IRS still received nearly 40 million paper information returns, even though approximately 99% of all information returns for that year were eFiled. The IRS also noted that electronic filing has become more common, accessible, and economical, as evidenced by the prevalence of return preparers and service providers who offer electronic filing services, the availability of relevant software, and by the number of returns already being filed electronically on a voluntary basis.

The New Regulation Drops The Threshold From 250 To 10

Prior to the new regulations, a 250-return threshold was applied to each type of information form separately. For example, an employer filing 150 Forms W-2 and 150 Forms 1099 was not previously required to electronically file, since each return type did not separately exceed the 250 return threshold.

Under the new rule, the number of Forms W-2 and 1099 would be combined to determine whether the threshold is met. The final regulations require filers to add the total number of information forms together return to determine whether a filer meets the 10-return threshold and is thus required to file electronically. In addition to W-2s and all 1099 series, it also includes Forms 1042–S, 1094-series, 1095-B, 1095-C, 1097-BTC, 1098, 1098-C, 1098-E, 1098-Q, 1098-T, Forms 3921, 3922, 5498 series, 8027, and W-2G, as well as Forms W-2 variations for U.S. territories such as Forms 499R-2/W-2PR 

Fines And Penalties For Non-Compliance

Penalties under the new regulations may apply for non-electronic filing of information returns when electronic filing is required are severe. Such penalties may also apply for non-filing, late filing, or incorrect information. The potential penalty in 2023 is up to $310 per Form W-2 if filed after August 1st, and up to $580 for intentional disregard.

Story sourced from IRS, Forbes, and ADP websites.