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until Jan 31 when Year-End Forms are due.  Are you prepared? Find out Now

Are you ready to report electronically?

February 5, 2016
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Are you required to file your payroll taxes electronically? Odds are, the answer is “yes.”

Before we find out, let’s take a trip back 30 years, to 1986.

  • IBM introduced its first laptop computer, the PC Convertible, weighing in at 12 pounds
  • The Hacker Manifest is published in the underground hacker magazine, Phrack
  • The Internet Engineering Task Force (IETF) was formed, leading to standardization of the internet
  • Microsoft is listed on the New York Stock Exchange
  • The color computer is introduced
  • Apple introduces the MAC Plus

In the world of technology, think about how much has changed over the last 30 years. These events from 1986 seem like they should be about 100 years ago, not 30.

Oh, and one more thing from 1986, the Internal Revenue Service (IRS) started accepting simple tax returns electronically. Does this come as a shock to you? It certainly did to me. No one has ever called the IRS “ahead of its time.” Electronic filing to the IRS may have started with a small team in 1986, but it has certainly come a long way since then.

To add to the government’s investment, Congress passed IRS RRA 98 containing a provision setting a goal of an 80 percent e-file rate for “all federal tax and information returns.” This applies to many business taxes, such as corporate income tax and payroll tax.

Let’s face it, electronic filing is not a new thing. In fact, here at Greenshades Software, we got our start back in 1992 specifically from helping our customers create these early payroll tax e-files.

So, how can something that’s been around for so long, that the government has invested millions of dollars into, not be required for most businesses? It’s only logical that the IRS would want you to participate, and they do! These requirements do not end at company income tax returns – these requirements also apply to company payroll taxes.

As the IRS pushes to meet its 80 percent e-filing goal, businesses will need to prepare for payroll tax filing requirements. Businesses will need to either dedicate more resources to administering payroll processing, reporting, and depositing, in-house or outsource these operations to third-party payroll service providers.

So who is required to e-file? Generally speaking, the e-filing requirements are determined based on the number of records a business is filing to a reporting agency, such as a federal agency (the IRS, for example), a state agency, or a local agency.  In some cases, if a business can make a substantial claim as for why they should be excluded from e-filing requirements, some states are willing to be flexible, but the federal government is generally not flexible.

  • Federal requirements:
  • Any business reporting 250 records or more, per entity, is required to e-file
  • Where are the records e-filed to?
  • Filing Information Returns Electronically (FIRE)
  • Forms 1042-S, 1097, 1098, 1099, 3921, 3922, 5498, 8027, 8955-SSA, and W-2G may be filed electronically
  • FIRE can accept multiple files for the same type of return.
  • Combined Federal/State Filing Program (CF/SF) is available for participating states.
  • Unless e-filing through a 3rd party application, Transmitter Control Code (TCC) registration will need to be completed with the IRS.
  • Affordable Care Act Information Return (AIR) system.
  • Form 1094-B, Transmittal of Health Coverage Information Returns
  • Form 1095-B, Health Coverage
  • Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
  • W-2s can be filed through Business Services Online. You must register to use Business Services Online – Social Security’s suite of services that allows you to file W-2/W-2Cs online and verify your employees’ names and Social Security numbers against the Social Security Administration’s.
  • State requirements:
  • All 50 states support electronic reporting formats, for State Unemployment (SUTA/SUI), SDI (State Disability) and State W-2 (where applicable).
  • Reporting methods vary by state
  • Most states require e-filing for businesses with more than 250 records, however, many states have far lower thresholds
  • Connecticut, Georgia, Oregon, Utah and Virginia require businesses of all sizes to report State W-2 (annual W-3 filings) electronically
  • Alabama, District of Columbia, Indiana, Maryland, Mississippi, Rhode Island and Vermont require any business with 25 or more employees to file W-2 filings electronically
  • Many additional states require e-filing of businesses with 50 or more records
  • Local requirements:
  • Most city and localities do not require e-filing, however, many jurisdictions are now accepting electronic filings in lieu of paper returns

So how do you report electronically?

  • The Federal government has 3 separate systems:
  • Filing Information Returns Electronically (FIRE)
  • Affordable Care Act Information Return (AIR) system.
  • Business Services Online.
  • There are typically two methods for State electronic filing, however, it varies by state:
  • Some states have website submission.
  • User can either manually enter the information into state website, or upload CSV or XML file per state’s required e-file spec
  • Some states still require CD-ROM type media (most no longer accept diskettes or tape cartridges) be mailed to the state agency.
  • Local reporting:
  • Some Locals are reported to the state, with state reporting
  • Some locals are reported via the state website, separately of state reporting
  • Most reported on CD-ROM

What about electronic payment requirements?

As of January 1, 2011, the IRS eliminated Form 8109 — the last link with paper tax deposit coupons — forcing employers to use the Electronic Federal Tax Payment System (EFTPS) for all deposits, including payroll taxes.

The EFPTS tax payment service is provided free by the U.S. Department of the Treasury. After you’ve enrolled and received your credentials, you can pay any tax due to the Internal Revenue Service (IRS) using this system.

Child Support payments, too: the IRS isn’t the only one requiring electronic payments. Most states now require all child support payments be issued by employers in the ACH format. This allows for faster processing of child support payments, which everyone welcomes, however, this does place an additional burden on employers.

With additional burdens continuing to be passed down by the federal, state and local government, it’s no surprise how many employers choose to outsource their payroll. Considering outsourcing your payroll? Keep this in mind While outsourcing your payroll may be the best choice for your business, it’s not your only option. With proper planning and some assistance from your trusted partner in the community, you can continue to reap the benefits of keeping payroll in-house, while maintaining the compliance that today’s world demands.

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