Effective January 1, 2024, organizations filing 10 or more Internal Revenue Service (IRS) returns of any kind, including Forms 941, 940, W-2, 1099 series, 5330, and 5500 to name a few, are required to file certain forms electronically. On February 21, 2023, the IRS released the final regulation in TD 9972, which affects most organizations that are required to file informational returns with the IRS.
TD 9972 reduced the prior regulation mandating organizations filing more than 250 returns in a calendar year to 10. Therefore, returns being completed in 2024 for the year, ended 2023 due in 2024, would be under this new threshold of 10.
Returns affected by the electronic filing mandate include partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns for U.S. Source Income of Foreign Persons, informational returns, and certain excise tax returns, among others. Employers specifically need to be aware that all 1099’s and W-2’s are subject to this rule change, and if they are over the threshold, they have to file these electronically. However, the new threshold does not apply to employment tax returns such as Forms 940 and 941. Those can still be filed on paper.
To determine if you are subject to the new 10-return threshold, filers must aggregate most return types. Under the final regulations, the number of Forms W-2 and 1099 would be combined to determine if the threshold has been met. The final regulations require filers to aggregate across return types to determine if they meet the 10-return threshold and are required to file electronically. This includes Forms 1042–S, 1094 series, 1095–B, 1095–C, 1097-BTC, 1098, 1098-C, 1098–E, 1098-Q, 1098–T, 1099 series, Forms 3921, 3922, 5498 series, 8027, W–2G, Forms W–2, Forms 499R–2/W–2PR, and Form W–2VI.
Penalties for failing to file information returns electronically can be significant. The potential penalty in 2023 is up to $310 per informational return, up to an annual maximum of $3,783,000. For businesses with annual gross receipts of less than $5 million, the maximum is $1,261,000. Penalty amounts are indexed and change annually. Hardship waivers may be available for filers that would experience hardship in complying with the e-filing requirements.
If you have any questions, please feel free to contact Porte Brown partner, Mark Dekhtyar, at 847-956-1040.
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