This blog was last updated on June 7, 2023
Direct state reporting obligations have gotten increasingly difficult for some businesses over the past few years. With more states requiring direct reporting of form series 1099, more companies are subject to penalties if they do not comply with those obligations.
As state reporting evolves, ensuring your process is efficient is critical. Strengthening your reporting process gives your employees more time to focus on other key business initiatives and less time on reporting.
Below are some best practices to elevate your direct state reporting process:
Know your obligations
The easiest way to avoid costly penalties is to know your direct state reporting obligations. Reporting with states is much different than reporting with the IRS. When you report federally, (with the IRS) you only need to follow one deadline, threshold and filing method per form. With direct state reporting, each state can have different deadlines, thresholds and filing methods per form, which makes staying compliant extremely difficult. Know which states you have obligations in and find their specific requirements. Additionally, find which state obligations could be satisfied if you file with the Combined Federal State Filing Program (CF/SF).
Create a project plan
Putting a plan in place ahead of time is the easiest way to a successful filing season. After finding which state(s) you have obligations in and which forms are required, create a project plan. This should include the reporting process, who is responsible for each step (including vendors) and when each step is to be completed to file on time.
Get registered with states
State portal modernization has been and continues to be a priority for states in recent years. Many states are changing or updating their reporting systems, like Connecticut, Maine, Oregon and Pennsylvania. Ensuring you can login before reporting season begins can be a big timesaver when filing season starts.
Additionally, when you file directly with states, often times you will be asked for a state ID. Have this prepared ahead of time. If it’s reporting time and you do not have your state ID, you will be unable to file in certain states (e.g., Pennsylvania and Wisconsin). If you do not have a state ID and need one to file, you may face longer than normal hold times to avoid a penalty for late filings.
Watch for updates
State changes can happen at any time during the year, even well into reporting season. Similar to the IRS, states do not have a deadline as to when they need to release changes for filing of form series 1099. However, it is much more difficult to keep track of multiple state changes versus the IRS. Ensure you are watching for updates in each state in which you have obligations and put a process in place to implement those changes if you use a manual system to file.
Why you should implement tax reporting software
Implementing tax reporting software can improve operational efficiencies and save your company from costly penalties.
Regulatory changes can be difficult to predict, but with Sovos, our team of 65+ regulatory analysts watch for them year-round. When changes do happen, they are immediately implemented into our system for a streamlined and easy direct reporting process.
Sovos has a wide variety of state reporting solutions and services that can fit any business’ needs. No matter if you have reporting obligations in one state or 40 states, Sovos solutions are here to help you stay compliant, allowing you to focus more on your daily operations and less on reporting.
Take Action
Want to learn more about elevating your direct state reporting process? Watch our webinar.
