The Internal Revenue Service (IRS) announced finalized regulations earlier this year on February 23. The regulations significantly expanding mandatory electronic filing of tax and information returns, requiring a majority of all returns filed in or after 2024 to be submitted electronically instead of on paper.
Under the updated rules, filers with 10 or more returns of any kind for a calendar year most likely will need to file electronically. Prior to these changes, electronic filing was required if the filing was more than 250 returns of the same type for a calendar year.
The discussion below focuses primarily on common workplace forms, such as Form W-2, Form 1099 and employee benefit plan filings, however the new rules also apply to other types of returns.
It is important for affected employers to take action ahead of time as they may need to make significant changes to their current process in order to meet new requirements. These changes may include implementing new software, policies and procedures, making “doing the same as last year” not an option.
Who is Affected?
Practically all filers of 10 or more information returns of any type are impacted by this change. Even workplace retirement plans may need to file Form 1099-Rs (for benefit payments) and other forms electronically with the IRS starting in 2024 for the 2023 plan or calendar year.
Which Returns are Affected?
In addition to the information returns that are the primary focus of this article, the new rules cover a broad variety of returns, including partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns for U.S.-source income of foreign persons, registration statements, disclosure statements, notifications, actuarial reports and certain excise tax returns. The rules still apply to those returns that are already required to be filed electronically, such as partnership returns with more than 100 partners and tax-exempt organization annual returns in the Form 990 series.
What Constitutes 10 Returns?
The 10-return threshold for mandatory electronic filing is determined on the aggregate number of different types of forms and returns. However, the aggregation rules can be confusing because the filings included in the count change depending on which form the determination is made. Also, some filers must be aggregated with all entities within its controlled or affiliated service group to determine if 10 or more returns are being filed for the tax year. For example, Form 5500 employee benefit plan filers must count the filings of the employer who is the “plan sponsor” and other entities in the employer’s controlled and affiliated service group.
It is important to pay particular attention to the total number of returns across all return types, because the new electronic filing threshold is determined based on the aggregate total, not the number of returns per return type. This might require coordination between different departments within an organization and immediate consultation with the IT department and/or software provider to ensure there is adequate time to implement technology solutions or software upgrades before the 2024 filing deadline.
In addition to such filing changes, the IRS has also released a new and free online portal for filing returns electronically called the Information Returns Intake System (IRIS). IRIS is a free service, available to filers of any size and is secure, accurate and does not require any special software.
For more information on how these changes may impact you and your organization, contact our team today.