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Adapting to the New IRS Electronic Filing Requirement for Businesses

Jun 2, 2023

The Internal Revenue Service (IRS) has announced that for tax year 2023, businesses with an aggregate form count of 10 or more must file electronically. This new requirement includes several common tax forms, including W-2s, 1099s, and 1098s, and is part of a broader effort by the IRS to encourage greater use of electronic filing, which generally is considered more accurate, secure, and efficient than paper filing.

Streamlining Tax Filing

While electronic filing has been available for many years, it was not mandatory for many businesses until recently. Many companies filed paper forms with the IRS, which could be not only time-consuming, but error-prone and expensive. However, the process has become much simpler and faster with the advent of electronic filing. Electronic filing allows payers of wages and other reportable amounts to submit their forms online, using secure IRS or third-party software, and receive confirmation of receipt within minutes. In addition, electronic filing reduces the likelihood of errors because the software automatically checks for mistakes and incomplete information.

Which Forms Are Impacted?

The new requirement for electronic filing applies to a variety of common tax forms. Forms affected by the IRS' electronic filing requirement include:

  • W-2
  • 1098 series
  • 1099 series
  • W-2G
  • 1042-S
  • 1094 and 1095 series
  • 3921 and 3922
  • 8027

Any business that issues ten or more of these forms during the tax year will be required to file electronically going forward. This may not be a significant change for many companies that already file electronically. However, for smaller businesses or those that have not yet made the switch to electronic filing, this could require some adjustments to their tax filing process. Although payers with fewer than ten forms can still file on paper, the IRS encourages all businesses to consider filing electronically, even if they are not required to do so.

Why the IRS Made the Switch

There are several reasons why the IRS is pushing for greater use of electronic filing. Generally, electronic filing is more accurate than paper filing because enhanced software checks for errors and incomplete information, reducing the likelihood of mistakes and helping ensure that employers provide accurate information to the IRS. Additionally, electronic filing is more secure than paper filing, as it is protected by encryption and other security measures. This helps protect potentially sensitive employee data and reduces the risk of identity theft.

However, the primary motivation behind this switch is rooted in the pursuit of enhanced efficiency. The implementation of electronic filing significantly streamlines the processing of tax forms, saving valuable time and resources. This increased efficiency enables the IRS to process tax returns with greater speed and accuracy, ultimately benefiting both businesses and recipients alike.

What Are the Options?

For companies that are required to file electronically, several options are available. The IRS provides free software for electronic filing, which can be downloaded from their website. In addition, many commercial tax software products are available, which can help streamline the tax filing process and make it easier to comply with IRS regulations. Some businesses may also choose to outsource their tax filing to a third-party service provider, which can handle the entire process on their behalf.

Ensure a smooth transition amidst this new requirement by seeking guidance from your CRI advisor. Their knowledge and experience will help alleviate any uneasiness you may have navigating these changes, and provide you with the necessary support to prepare and file all your required tax documents.

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