The IRS issued Proposed Regulations in September that included a reduction to the required electronic filing threshold for businesses from 250 information returns to 100 returns for the 2021 tax reporting season. Further, the new requirements change the way that a business determines how to arrive at the number of returns required to be filed electronically. In doing so, more small businesses and self-employed filers are exposed to last-minute electronic 1099, W-2 and ACA filing requirements for the 2021 season.
As required by law, the IRS posted the proposed regulations and requested feedback from the industry for a standard period of time and the comment period closed on September 21, 2021.
Therefore, the industry should anticipate that Final Regulations will be released in the coming weeks.
eFile Threshold Changes
Historically, companies were required to eFile if they had 250 or more of a single form type to report to the IRS. That meant if a company had 250 Forms 1099-MISC, they had to file electronically. If that same company had 10 Forms 1095-C, they could be mailed to the IRS rather than needing to file electronically.
Section 2301 of the Taxpayer First Act of 2019 (TFA) authorized the IRS to reduce the electronic threshold for filing returns in a step-down approach. For 2021 returns, filers will be required to submit information returns electronically if they reach a threshold of 100 forms. For 2022, that threshold drops to 10 forms.
To complicate matters, the regulations also propose to change the way a filer determines that they have reached the threshold for electronic filing purposes. Instead of applying the threshold based on each information return that a filer might issue, the regulations require that all information returns filed must be counted for purposes of determining whether to file electronically. So, for example, if a filer has 25 Forms W-2, 50 Forms 1095-C and 80 Forms 1099-NEC, the filer is well over the 100 form aggregate threshold and would need to file each of those returns electronically.
These changes present significant challenges for small business and self-employed filers. Forms W-2 are required to be filed with the Social Security Administration through the Business Services Online (BSO) system, Forms 1095 are required to be filed with the IRS through the Affordable Care Act Information Returns System (AIRS) and Forms 1099 are required to be filed with the IRS through the Filing Information Returns Electronically (FIRE) system. The IRS systems are not ‘fill-in’ forms; so unique data files need to be created by the business filer for each set of information returns that need to be filed. The business filer will need to apply for and receive authorization, credentials and testing approval – just to utilize these systems.
Changes to the TCC Process for 2021 & Beyond
As a result of modernizing some of the IRS systems, the process by which a company can apply for a Transmitter Control Code (TCC) has been updated. The TCC is an IRS-assigned code that identifies the filer when they submit information returns. The TCC is required before a business can submit information returns in AIRS or FIRE.
The original Transmitter Control Code (TCC) Fill In option has been replaced by the online Information Return (IR) Application for Transmitter Control Code (TCC). The new TCC vetting process is more secure and accurate to avoid fraud and ensure information safety. New FIRE users must authenticate their identities and create a new account via TCC.
If you do not utilize a third-party software filer like Sovos for your W-2, 1099 or ACA reporting obligations – you need to take swift action. Applications for new TCC’s for the 2021 filing season must be submitted by November 1, 2021.
Take Action for 2021 Tax Reporting Season
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