E-filing regulations and small businesses

On Behalf of | Aug 9, 2021 | IRS Tax Law

Business owners in Texas should know that the IRS is considering a big rule change. Rather than allowing mid-sized businesses to continue filing their W-2s and 1099s on paper, they may be forced to begin e-filing. This possible rule change is related to the Taxpayer First Act of 2019. The idea is that modernizing procedures and utilizing technology more effectively will make things better for all taxpayers.

What is the threshold?

In 2019, the IRS began to require employers that process at least 250 pieces of information with the IRS to e-file. Now, the IRS is considering lowering that threshold to 100. This proposed change would take effect in 2022. After 2022, businesses with as few as 10 information returns would be required to e-file.

This could represent a huge shift for some business owners. Many small businesses find that doing things in a traditional, analog way can actually save them time and money. For example, they may not need to invest in expensive software programs for things like accounting. A paper ledger, or one kept in a general spreadsheet program like Excel, may work fine for them.

The forms that businesses would need to e-file are not limited to 1099s and W-2s. Under the current proposed changes, they would also include Form 8300, Forms 1098 C and Q, and Form 1097-BTC.

Benefits of e-filing

Larger companies have long benefited from the economies of scale that can come with e-filing. They save on postage, and they don’t have to deal with lost mailings, for example.

Small businesses could see some benefits from e-filing, too. The transition might be difficult at first, but there will be IRS materials to provide more information. A tax preparer or accountant may be able to help business owners navigate any new e-filing requirements that go into effect.