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IRS Expands Requirement to E- File Information Returns Starting in 2024

Article Highlights:

  • New Lower threshold for e-filing information returns

  • Why the e-filing mandate?

  • What is an Information Return?

  • Other affected filings

  • Corrected information returns

  • Noncompliance Penalties

  • Waivers

  •  IRS Portal

Businesses, whether operating as a corporation, partnership, or a sole proprietorship, have been required to electronically file information returns when the aggregate number of these returns, regardless of the type of return, for a tax year was more than 250. The IRS issued regulations in February 2023 lowering the threshold to 10 or more returns, effective with the returns filed on or after January 1, 2024. For the most part, this means the electronic filing mandate will apply to 2023 information returns.

Some small businesses that previously filed paper information returns, because the number of information returns they had to issue was below the 250 threshold, will now find that they will need to file the forms electronically. Under the prior rules, the threshold number of returns for required e-filing applied separately to each type of return, while under the new regulations, all types of information returns are combined when totaling up the number of returns required to be filed.

Affected employers may need significant lead time to implement new software, policies, and procedures to comply with the new rules. Thus, even though electronic filing is not required until 2024 for the 2023 tax year, employers should evaluate what changes may be needed. Simply doing the “same as last year” will not work for many employers.

Why the e-filing mandate? The IRS believes that the electronic filing mandate is necessary due to the sheer volume – some four billion information returns – they receive each year. Although about 99% of all information returns in 2019 were e-filed, that still left nearly 40 million paper information returns for the IRS to handle. And as became all too apparent during the COVID-19 crisis, paper filings bog down the IRS’s ability to efficiently process returns. In instituting the lower threshold, the IRS also noted that electronic filing has become more common, accessible, and economical, as evidenced by the prevalence of return preparers and service providers who offer electronic-filing services; by the availability of relevant software; and by the numbers of returns already being filed electronically on a voluntary basis.

What is an Information Return? So, you might wonder what an information return is. You are probably familiar with Form W-2 that reports annual wages of an employee, Form 1099-NEC for nonemployee compensation paid to an independent contractor, Form 1099-INT that gives the year’s interest income paid by a bank or other financial institution, and Form 1098 that is issued by a lender and reports the home mortgage interest a taxpayer paid during the year. These are all information returns, but there are significantly