W-2 and 1099 Filing Changes for 2023

Be ready for some changes this upcoming filing season as it relates to the filing of informational returns, specifically Form W-2 and 1099.  The Taxpayer First Act of 2019 authorized the IRS to reduce the threshold for required electronic filing, upon publication of final regulations.  Prior to the 2023 filings, only taxpayers with more than 250 of a single type of return were required to be electronically filed.    Final regulations were published in the Federal Register on February 23, 2023 and mandated that employers or payors that file more than 10 information returns of any type, but primarily W-2 and 1099, to do so electronically.  For example, in the past if you had 249 Form 1099s and 50 W-2s, you could continue to file all on paper.  Now, someone that has 9 Form 1099s and 1 Form W-2 is required to file electronically because in the aggregate they exceed the limit of 10.

 The following information return forms are subject to these rules:

Form W-2 Series
Form 1042-S
Form 1094 series
Form 1095-B
Form 1095-C
Form 1097-BTC
Form 1098
Form 1098-C
Form 1098-E
Form 1098-Q
Form 1098-T
Form 1099 series
Form 3921
Form 3922
Form 5498 series
Form 8027
Form W-2G

The IRS has stated that electronic filing has become necessary because of the volume of information returns received each year.  The Service receives nearly 4 billion information returns per, nearly 40 million of which are filed on paper.

If you are used to filing on paper, like so many farmers are, how do you accomplish electronic filing? If you use a CPA they will have software capable of completing the filing electronically.  Most widely used accounting software packages will provide for electronic filing in some fashion.  Often, these packages mail the recipient copy direct to the payee which means less hassle involved in getting the documents in the mail.  The IRS also has a new online portal to help taxpayers comply with the new requirement.  The system is free and web-based and is called the Information Returns Intake System (IRIS).  This system is likely the most viable for those small businesses that do not use a CPA and generally file on paper.

What happens if you don’t comply with the new requirements?  The penalties are steep.  The penalty for not filing electronically is $310 per return.  That said, a farmer that has 10 landlords and issues 10 Form 1099-MISC on paper, could be looking at a penalty of $3,100.  If you experience a hardship that prevents you from filing electronically you can apply for an exception waiver using Form 8508.  However, the definition of hardship looks like it may be tough to beat.

As we end 2023 and begin a new filing season, make sure to get in front of this requirement if it applies to you.  If you are used to filing your own information returns, it may be time to get a professional involved…and it may provide you with less headaches in the process.