On February 21, 2023, the IRS made significant changes to the electronic filing requirements that will take effect in 2024. The IRS electronic filing changes may impact you if you have employees, work with independent contractors, or meet other requirements.
Read on to learn about the e-file requirements, whether these changes impact you, and how online payroll can simplify your responsibilities.
New IRS electronic filing requirements for 2024
The IRS annually processes billions of information returns (e.g., Form W-2, 1099-NEC, and 1099-MISC). Most of these returns—5.1 billion in fiscal year 2022—are electronic. But, the IRS also received 27 million paper returns in 2022.
The IRS states that reducing the volume of paper returns would free up staff and resources; improve efficiencies; and reduce the cost of postage, printing, shipping, and storage. The 2024 IRS electronic filing requirements aim to limit the number of paper returns by increasing the number of people who must e-file.
Beginning in 2024, you must e-file if the total information returns you’re filing equals 10 or more.
There are hardship waivers for filers who would experience difficulty complying with the new IRS electronic filing requirements. Consult the IRS for more information on applying for a waiver from electronic filing.
Here’s a closer look at e-filing changes announced by the IRS.
1. Drops the 250-return threshold to 10
Under the previous rule, the IRS only required e-filing if you had to file 250 or more returns of the same type (e.g., Forms W-2). The new IRS regulations reduce the 250-return threshold to 10.
If you file 10 or more returns in a calendar year, you must e-file.
2. Includes all returns in the new threshold
Under the previous IRS rule, the 250-return threshold was applied individually to each information return type. For example, 1099-NEC was one return type, and Form W-2 was another return type. The new IRS rule requires filers to aggregate almost all information return types.
You must e-file if the sum of all types of returns (e.g., Forms W-2, 1099-MISC, and 1099-NEC) is 10 or more.
|Previous Rule||2024 New IRS E-file Rule|
|E-filing Threshold||You must e-file if you have 250 returns or more per return type. |
The threshold applies separately to each type of return.
|You must e-file if the total number of returns you have is 10 or more. |
The threshold applies to your combined number of returns.
|Example||You have 200 Forms W-2 and 200 Forms 1099-NEC. You do not need to e-file because you don’t have 250 or more returns of a single return type.||You have 5 Forms W-2 and 5 Forms 1099-NEC. You must e-file because you have a combined total of 10 information returns.|
Need to file a corrected W-2 (Form W-2c)? The W-2c does not count toward the 10-threshold aggregate. However, you must file the W-2c in the same format you filed the original. For example, if you e-filed the W-2 you’re correcting, you must e-file the W-2c.
3. Eliminates the e-Filing exception for corporations
The new rule also eliminates the e-Filing exception for corporation income tax returns reporting total assets under $10 million at the end of the taxable year.
4. Requires partnerships with more than 100 partners to e-file
The new rule also requires partnerships to e-file partnership returns if there are more than 100 partners or if the partnership must file at least 10 returns during the taxable year.
What to know about information returns
Does the new rule impact you? Here’s a brief recap of common information returns you may need to file in business:
Form W-2, Wage and Tax Statement, reports information about an employee’s annual wages and withheld taxes. You must file a W-2 if you paid an employee during the year. Do not send Form W-2 to the IRS. Instead, mail or e-file Form W-2 with the Social Security Administration (SSA). The SSA then sends tax information to the IRS.
Form 1099-NEC, Nonemployee Compensation, reports nonemployee compensation paid to independent contractors. You must mail or e-file a 1099-NEC with the IRS if you paid $600 or more to a contractor.
Form 1099-MISC, Miscellaneous Information, reports certain miscellaneous payments businesses may make during the year. You must mail or e-file a 1099-MISC with the IRS if you paid $600 or more in qualifying payments, including prizes and awards, medical and health care payments, and payments to an attorney for legal services. Also, file Form 1099-MISC if you paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
Do I have to e-file? Examples
Knowing whether you have to file electronically or not can be confusing. Look at the following examples of when electronic filing is required and when it’s not.
Example 1: You didn’t have employees during the year, but you did hire 12 independent contractors paid over $600 each. You must e-file your 12 Forms 1099-NEC.
Example 2: You had five employees and paid five contractors over $600 each. You must electronically file both your five Forms W-2 and five Forms 1099-NEC.
Example 3: You paid four independent contractors over $600 each and had five employees. You also paid over $600 to an attorney for legal services. You must e-file your four Forms 1099-NEC, five Forms W-2, and one Form 1099-MISC.
Example 4: You had five employees. You can still paper file the five W-2s since your total returns are under the 10-return threshold.
Example 5: You had five employees and paid seven contractors under $600 each*. You do not need to create and file Forms 1099-NEC for the contractors. As a result, you can still file the five paper W-2s since your total returns are under the threshold.
*Remember, the IRS does not require filing a Form 1099-NEC if you paid a contractor less than $600. And in most cases, you also do not need to file a 1099-MISC if you paid someone less than $600.
Failing to keep up with new e-file requirements will cost you
The IRS may penalize businesses that fail to e-file when required. Penalties can cost hundreds of dollars per incorrectly filed return.
Check out the IRS Information Return Penalties page for a complete list of IRS penalties and up-to-date amounts.
The bottom line and next steps
If you need to file at least 10 information returns, you must file the returns electronically. You can file Forms W-2 online with the Social Security Administration. You can use the IRS’ new, free online portal to help you e-file Form 1099 series information returns.
If you need to file nine or fewer information returns, you may still have the option to file using paper forms through the mail. But keep in mind that there are several advantages of e-filing. E-filing is a faster process than paper filing and takes less time to prepare the form. You can also save money on postage and printing.
Simplify your e-filing responsibilities with Patriot Software
Struggling to determine whether you need to e-file your returns? Don’t want to deal with tax collections, deposits, and filings?
Sign up for Patriot Software’s payroll services. Patriot will file your W-2s (along with all other required filings!). And you can opt into e-filing Forms 1099 at no extra charge for Full Service customers.This is not intended as legal advice; for more information, please click here.