This blog was last updated on November 21, 2024
While “spooky season” may be over for most of us, the scariest time of year for many businesses is right around the corner: tax filing season. As they brace themselves for the flood of forms, regulatory updates, and tight deadlines, the fear of missing a critical filing or making costly mistakes can haunt even the most prepared teams.
To help you stay one step ahead of these compliance hurdles, we’ve compiled insights from Wendy Walker’s highly anticipated ‘Spooky Season Tax Updates’ webinar. This year-in-review addresses the most common questions and concerns raised by businesses like yours, shedding light on the key regulatory changes and providing actionable guidance to help you tackle the upcoming filing season with confidence.
What is the new e-filing threshold for information returns?
Curious about the new electronic filing rules? You’re not alone. One of the hottest topics this year was the wave of questions about the IRS and Treasury’s T.D. 9972 regulations that were finalized in early 2023. These updates bring to life key concepts outlined by Congress throughout the Taxpayer First Act of 2019, mandating e-filing for a wide range of tax returns, including business income, withholding, and information returns.
Here’s where it gets interesting: for information returns, filers must now add up all forms they’re obligated to issue for the calendar year—think Forms W-2, 1099, 1042-S, and more. If the total hits 10 or more, electronic filing becomes mandatory for all forms. This sweeping change, effective for 2023 information returns filed earlier this year, marks a pivotal shift in how businesses meet their reporting obligations. Ready or not, the era of mandatory e-filing is here.
Am I required to e-file Form 1042?
Form 1042, the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, has seen significant changes under the T.D. 9972 regulations, leaving some filers seeking clarification. Starting with 2023 returns, all financial institutions were required to e-file Form 1042, regardless of thresholds. Meanwhile, non-financial withholding agents were to e-file Form 1042 if they met the 10-form threshold for other information returns, such as Forms W-2 or 1099. Importantly, these e-file requirements did not apply to individuals, estates, or trusts.
However, earlier this year, the IRS provided an administrative exemption from the e-file requirements for 2023 returns. Notice 2024-26 provided a one-year exemption from the e-file requirement for Form 1042 for all withholding agents. The Notice also provided an additional year’s exemption for non-U.S. withholding agents for 2024 returns.
Bottom line, 2024 Form 1042 must be e-filed by March 15, 2025, by U.S. financial institutions and U.S. non-financial entities must e-file following the 10-form information return threshold. Non-U.S. withholding agents will be required to e-file Form 1042 starting with 2025 returns due in March 2026.
What is the latest version of Form W-9?
Many filers are questioning whether they need to replace existing W-9 forms with the new March 2024 version. While the Internal Revenue Service (IRS) doesn’t specify filing requirements in the Form W-9 instructions, the industry typically adheres to a six-month implementation timeline. As of September, organizations should have already started using the updated Form W-9 when onboarding new customers and vendors to ensure compliance with reporting requirements.
Existing W-9 forms only need replacement if a customer or vendor updates critical information such as their legal name or Tax Identification Number (TIN). This aligns with best practices for filing information returns, including Forms 1099 and Form W-2, to meet both federal and state reporting obligations.
For organizations using substitute versions of Form W-9, it’s essential to determine if changes on the new form affect their existing versions. For instance, a substitute Form W-9 that does not request the recipient’s federal tax classification might not need updates. For clarifications about the use of substitute versions, check out the Substitute W-9 section in the IRS’s Instructions for the Requester of Form W-9.
Do 1099s need to be filed with the state?
Many attendees had questions about the Combined Federal State Filing (CF/SF) program and direct state filing requirements for specific states and forms. It’s essential to remember that while a state may participate in CF/SF, using the program may not always fulfill state reporting obligations. Each state has unique reporting requirements, including mandates for forms not covered by CF/SF as well as the need to file returns directly with the state, even for CF/SF participants.
For Sovos Managed Services clients, we take care of these nuances, filing directly in states when required and leveraging the CF/SF program where we can. For a detailed overview of state-specific reporting requirements, explore our Direct State Reporting Map.
Are there specifications for tax forms and envelopes?
Some attendees asked for clarification about the IRS’s 2024 update to Publication 1179, specifically regarding the use of logos, slogans, and advertisements on tax forms and envelopes. According to Section 1.3.2, filers are prohibited from including logos, slogans, or advertisements on payee copies of Forms 1097, 1098, 1099, and other forms listed in that section. The 2024 update further specifies that such branding is also not allowed on the outer envelopes used to mail these tax forms.
The biggest takeaway here? To ensure compliance, avoid printing logos, slogans, or advertisements on both the payee copies of tax forms and the envelopes containing them.
As tax filing season creeps closer, the fear of regulatory missteps and looming deadlines can feel like a true business nightmare. But the difference between a stressful tax season and a successful one often comes down to how well you prepare. Set yourself up for success in 2025 and beyond with the full Tax Year 2024 Readiness series.
