E-filing changes IRS must make soon, new report says

IRS needs to make some significant improvements if it wants to boost businesses’ rates of e-filing. That’s according to the latest annual report from the Electronic Tax Administration Advisory Committee (ETAAC).

Each year, ETACC makes recommendations to the Service for changes it needs to make to modernize operations and make tax filing smoother for both individuals and businesses. Increasing e-filing rates has been an IRS priority for years, and the agency must make key updates if it wants this to happen.

Here’s a preview of the changes you could see coming.

Ways to boost e-filing & security

In one of its recommendations to IRS, ETAAC encourages the agency to work with states and software platforms to implement various e-filing enhancements that remove any existing roadblocks to e-filing for individuals and businesses.

While it can be simple to e-file certain returns, the process can get tricky in some situations – including if there’s suspected identity theft. Often, IRS will ask for returns to be filed on paper if this occurs. That can cause processing backlogs. And the longer it takes to process the correct return, the bigger impact any identity theft can have.

That’s why ETAAC is calling on IRS to continue modernizing its systems so taxpayers can submit any required documentation and forms online. This update would include advanced security features to verify and protect taxpayers’ identities.

E-filing & Payroll

There’s a specific need for IRS to work with Payroll departments to boost e-filing of employment returns, ETAAC said. Here’s why: The second-largest category of paper returns IRS receives are from the 94x series to report payroll and employment taxes. In calendar year 2021, IRS received over 17.5 million paper returns from this series.

Much of this volume was due to changes made in response to the pandemic, including the employee retention credit businesses could claim against their payroll taxes under the CARES Act. Since many of the credits were retroactive, businesses had to file amended returns on paper. And this process prevented them from receiving the credits quickly.

This is precisely why IRS must expand its systems to allow more employers to submit returns online, especially small businesses with fewer tech resources. Particularly, ETAAC said the agency should allow business taxpayers to report their payroll taxes by uploading PDFs. IRS’ e-file system should also allow employers to submit amended returns, eliminating the need for paper forms.

These e-filing updates will likely take priority for IRS going forward, and we’ll keep you updated.