The IRS released final regulations amending the filing rules for W-2, 1099, and other information returns.
Is your business prepared for the recent changes to IRS regulations? The IRS recently issued final regulations that amend the filing rules for W-2, 1099, and other information returns, which could affect your year-end process in 2023.
The purpose of these new e-file requirement thresholds is to enhance resources and services available to taxpayers, streamline tax time, and improve the overall efficiency of the operation, such as reducing postage, printing, and shipping.
What changes has the IRS made to e-filing requirements?
E-filing Threshold Reduced
One of the key changes is the reduction of the e-file requirement threshold for information returns, which took effect on February 23, 2023. T.D. 9972, issued as part of the Taxpayer First Act of 2019, ruled that e-filing is mandatory for businesses that file 10 or more returns in a calendar year.
This applies to partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns. Unlike previous rules, the new threshold is now an aggregate of all returns, regardless of the type of information return.
The regulation change also eliminates the exception for corporations that report total assets under $10 million. Any corporation that files 10 or more returns in a calendar year must comply with the e-file rules. Moreover, any partnership with more than 100 partners must e-file their partnership return if they file 10 returns of any type.
A New IRS Portal to Assist with E-filing
To assist businesses in e-filing their information returns, the IRS launched a new portal that is free, secure, and easy to use. The portal is specifically designed to help businesses file their 1099 series returns electronically. The IRS is expecting the portal will increase the number of e-filed returns from 2021, where only about 82% of all corporate income tax returns and 90% of partnership tax returns were e-filed.
What changes has the IRS made to Form W-2?
Redesign of Form W-2
In addition to the changes in e-filing requirements, the IRS also streamlined the W-2 filing process for businesses. Starting next year, businesses will be able to complete and print Copies 1, B, C, 2 (if applicable), and D (if applicable) of Forms W-2, W-2AS, W-2GU, and W-2VI on IRS.gov. The IRS has also removed Copy D and the Note for Employers (originally on the back of Copy D) from Forms W-2AS, W-2GU, and W-2VI to reduce the number of pages for printing purposes.
Increase in Penalties for Improper Reporting
Finally, penalties for businesses that fail to meet proper reporting requirements have increased to adjust for inflation. The new amounts will apply to any return that is required to be filed after December 31, 2023. The amount of the penalty is based on when you file the correct Form W-2, ranging from $60 per form if you correctly file within 30 days of the due date, up to $310 per form if you file after August 1, do not file corrections, or do not file required W-2 forms. The maximum penalty is $3,783,000 per year for noncompliance ($1,261,000 for small businesses).
What does this mean for your business?
To ensure your business doesn't incur any penalties due to improper reporting, it's critical that you keep up with all IRS regulation changes. Before you begin your end of year process, consider evaluating the following:
- Does your business meet the new minimum threshold for e-filing?
- Is your business properly set up to e-file your returns if necessary?
- What steps do you need to take to be prepared to e-file?
- Is your payroll provider able to provide any help with your e-file process?
Greenshades’ team of tax experts stay on top of tax rules and regulations and adjust our solution as needed to accommodate changes. In addition, we provide one solution for all your W-2s, 1099s, and other year end forms. Our software collects and validates your data, creates forms, and allows for easy reviews, bulk updates, and SSN verification.
Once your forms are prepared, you can easily digitally file your returns, or Greenshades can submit returns and payments on your behalf. Schedule a demo today to learn more about our tax and compliance solutions and how we can make your year end process smooth and efficient.