The Internal Revenue Service and Treasury Department recently issued new tax-filing regulations that will affect most businesses starting in 2024.
Under the final ruling, businesses that file at least 10 tax returns, notifications, reports, or statements to the tax agency will need to submit them electronically instead of on paper.
Because the change will affect virtually all businesses that submit tax forms to the IRS, it’s a good idea to learn about the new rules and plan ahead. Here’s what to know.
Who will need to e-file?
Starting January 1, 2024, any business that files 10 or more returns with the IRS in a calendar year will be required to file electronically. To determine whether that rule applies to your business, you’ll need to tally up the total number of returns you file across all return types.
This is a substantial expansion to the previous e-filing threshold. In the past, the e-filing requirement only applied to businesses that filed at least 250 forms each year, and businesses could apply the threshold separately to each type of return. So a company that previously filed 200 Forms W-2 and 200 Forms 1099, for example, didn’t have to submit them electronically because each return type didn’t exceed the 250-return threshold.
But starting in 2024, all businesses will need to follow the new process if they file at least 10 of the following tax forms per year:
- Partnership returns (including organizations with more than 100 partners)
- Corporate income tax returns (including nonprofits and corporations that report total assets under $10 million at the end of their taxable year)
- Unrelated business income tax returns
- Withholding tax returns for U.S. Source Income of Foreign Persons
- Information returns to report payments, such as W-2 forms and 1099 forms
- Registration statements
- Disclosure statements
- Actuarial reports
- Certain excise tax returns, among others.
In a news release, the IRS explained it receives more than 4 billion tax forms every year, and around 40 million of them are submitted on paper. The tax agency hopes the new process will help them work through the massive backlog of both paper and electronic returns from the past few years.
Decreasing the volume of paper returns frees up staff and resources, the IRS says, which “further enhance[s] services for taxpayers and improves overall efficiencies while reducing postage, printing, shipping, and storage and their associated costs and burdens.”
E-filing is also generally faster and safer for your business, and it’s less vulnerable to human error. So while you may prefer paper forms if you have a rare tax situation, you’re trying to save money, or you want to build your tax expertise, the changes could result in a net positive.
Exceptions to the rule
The IRS will grant waivers to businesses that would experience hardship in complying with the e-filing requirements. Additionally, the 10-return threshold doesn’t apply to employment tax returns, such as Form 940 and Form 941.
Penalty for non-compliance
If you’re required to e-file your returns and you instead submit paper forms, the IRS considers it a failure to file. The penalties vary based on several factors, such as the size of the business, the type of return, and the date you submit the form. In 2024, you may owe up to $310 per form you file incorrectly, with a maximum annual penalty of $1,261,000 for small businesses with annual gross receipts under $5 million. The penalty rises for larger businesses, and there’s no penalty limit if you intentionally disregard the rules, according to the IRS.
The new e-filing rules take effect January 1, 2024—so now is a good time to review your current return threshold and start planning for these reporting changes.
The IRS created a new, free online portal to help businesses switch to the new filing procedures. The Information Returns Intake System, or IRIS, allows users to securely create, upload, edit, and view completed copies of nearly two dozen different types of 1099 forms.
The platform is available to businesses of all sizes and doesn’t require special software. The system also supports small and large volumes of 1099 forms, which can be entered manually or by uploading a special template.
Like all things tax-related, the rules can get a bit complicated. It’s best to check in with your bookkeeper or tax expert if you have questions about how to follow the new guidelines.