IRS proposes regs to lower e-filing threshold

Tell your finance team to get ready! Companies of all sizes will have to prepare for a lower e-filing threshold.

IRS recently proposed regulations to change the rules for filing information returns, effective as soon as this year-end.

Right now, the e-filing threshold is 250 returns. But as we’ve mentioned, the Taxpayer First Act allowed IRS to lower that threshold over time, as a way to get more companies to transition from paper to electronic practices.   

Now, official regulations have been proposed in the Federal Register. If passed, the Service will lower the threshold to:

• 100 returns for Tax Year 2021 (filed calendar year 2022),
• 10 returns for Tax Year 2022 (filed calendar year 2023) and beyond.

It’s worth reiterating that the new e-filing threshold includes all types of information returns (W-2s, 1099s, etc.). That means most companies – even small companies – will have to e-file this coming year-end. And if not this year-end, certainly the next.

The new regs also clarify that if you have to do corrections for information returns, they must be done in the same format. So, if your company e-files 1099s and W-2s, any corrections must be e-filed, too.

Prep for the future

These proposed regulations show IRS is serious about companies going digital.

If your finance team still uses paper processes, Payroll and A/P will need to collaborate and see if you’ll cross the 100-return line for this year-end. It’d be smart to prepare your team for e-filing sooner rather than later, so there are no hitches or glitches when you do have to go digital, whether it’s this year-end or next.

And for all companies, it couldn’t hurt to go over e-filing best practices, including:

• the ins and outs of the Filing Information Returns Electronically (FIRE) System
• details about using Accuwage Online for W-2s
• differing deadlines to watch for (paper versus electronic), and
• the right way to correct the two types of information return errors.  

Lastly, if your finance team have any recommendations or opinions concerning the e-filing threshold proposed regs, IRS is open to comments until Sept. 21, 2021. Comments can be sent through the Service’s eRulemaking portal.