Businesses of all sizes must properly determine what tax information to report, where to report it, how to report it and when it needs to be reported. Each state can have its own requirements—and those requirements can change—making it increasingly complicated for organizations when it comes time for reporting 1099 and other returns to state governments.
A recent Sovos webinar, presented by Kellianne Munichiello, regulatory counsel, and Joe Mullen, supervisor, compliance services, discussed top updates and trends for tax year 2022. The duo reviewed changes made to state portals, electronic reporting updates, 1099-K reporting updates and other key things businesses should know when it comes to state reporting for tax year 2022.
Which state portals made changes?
In recent years, IT modernization continues to be a large focus for states. This year, several states implemented new tax systems or updated current ones. Maine launched the Maine Tax Portal (MTP) toward the end of 2022. The state started converting business payments and return processes, planning to convert bulk filing of 1099 information to MTP at the end of this year. Additionally, Oregon launched the FRANCES system in fall 2022. This included changes to withholding tax payments and withholding return filing processes. Oregon will start converting 1099 and W-2 information return filing to the new system this year.
Pennsylvania also rolled out a new system, MyPATH, last year. The state required reporting of Form 1099 series and W-2s in the MyPATH system for tax year 2022. Finally, Connecticut switched from Connecticut TSC to MyConneCT.
What electronic reporting upgrades occurred for tax year 2022?
Several states also released new filing thresholds for tax year 2022.
- Arizona: Implemented an updated electronic filing threshold for 1099s and W-2s for tax year 2022, now requiring all federal form attachments (W-2/1099 Series) supported by the state to be filed electronically.
- Colorado: Updated its electronic filing threshold for 1099s and Form W-2, lowering it from 100 to 10 forms for tax year 2021 and beyond.
- The District of Columbia: Effective for 2023 reportings, Washington, D.C. eliminated paper options for submitting withholding reconciliations forms.
- Kentucky: Effective for 2023 reportings, Kentucky eliminated paper options for submitting withholding reconciliations forms.
- Maryland: The state no longer accepts Magnetic Media submissions for information returns and lowered its electronic filing threshold for 1099s to 25.
- North Dakota: Magnetic Media submissions for information returns are no longer accepted. Electronic filing is required for all federal forms for tax year 2022 reporting.
- Ohio: The state lowered its electronic filing thresholds for Forms 1099-R and W-2 for 2022 reporting.
- Rhode Island: Effective for 2023 reportings, Rhode Island eliminated paper options for submitting withholding reconciliations forms.
Were there 1099-K reporting changes?
Businesses should also know that there were important 1099-K reporting changes finalized last year. In December 2022, the IRS issued Notice 2023-10, which delayed implementation of the 1099-K reporting threshold and transaction limit change. Third-party settlement organizations (TPSOs) should only report 2022 Form 1099-K to payees when the aggregate of transactions was more than $20,000 paid and over 200 or more transactions during the 2022 calendar year. The new $600 threshold, and no transaction limit, will go into effect with tax year 2023 returns issued in 2024.
How can businesses maintain state reporting compliance?
The webinar also highlighted key steps organizations can take to ensure they maintain compliance through their state reporting processes.
- Identify applicable tax reporting requirements. This includes ensuring your business understands where it has obligations and what the requirements are.
- Review all data. Many states have thresholds, due dates and filing requirements that differ from the IRS, which often requires greater attention to detail when reporting.
- Create a plan. Companies should collaborate with internal stakeholders, name accountable parties for each task and then set—and pay attention to—due dates.
- Create a process. Project plans are important to have in place to keep track of what, when and where information needs to be reported.
- Test the process. Reconcile information and ensure confirmations. Keep records and paperwork associated with each state for audit or abatement purposes.
- Account for the Combined Federal/State Filing (CF/SF) program: Filing with CF/SF may reduce the amount of direct state reporting obligations your business has.
- Test transmittals/portals: Log in to all state portals to make sure access is still granted and verify transmittals are compliant.
- Maintain audit history: Track communication and filings with agencies and document internal processes.
As technology continues to evolve, more states could update their guidelines on electronic filing thresholds. It’s essential to have a process in place to ensure all requirements are being properly followed. Working with the right partner can help.
Want to learn more about how Sovos can help streamline your state reporting process? Sign up for a recorded copy of the webinar.