In the past couple of years, businesses have seen large changes from the IRS in an attempt to prevent filing fraud, improve efficiency for taxpayers, and modernize the IRS processes for easier electronic filing. Businesses need to stay on top of these W-2, 1099 and 1095 changes to stay compliant and avoid penalties. It’s becoming increasingly hard for businesses to keep up-to-date with year-end filing requirement changes.

Here are two important changes you need to be aware of for the upcoming tax season:

E-file Threshold Decrease

Traditionally, the IRS requires businesses to e-file if they file 250+ forms. Businesses filing less than 250 forms have the option to e-file or submit paper filings by the year-end deadline. The Taxpayer First Act of 2019, authorized the IRS and SSA to issue regulations that reduce the electronic requirement as of last year (tax year 2020). No further action was taken at the time.

Recently, the IRS released proposed regulations recommending that the e-file threshold for information returns be lowered:

• For tax year 2021: 250 to 100
• For tax year 2022: 100 to 10
• Other provisions are proposed in the regulations

This regulation includes the total for all aggregated forms filed. Meaning, the e-file threshold would no longer apply per form type, but rather filers that have a combined total of 100 or more information returns would be required to electronically file.

Will this impact your business? Learn more here.

Form 1099-NEC Update

For tax year 2021, the IRS has redesigned Form 1099-NEC to three forms per page, as compared to the previous year where it was constructed of two forms. Due to this change, a new envelope will be required for distributing recipient copies.

This form is new as of tax year 2020 (last year) for reporting nonemployee compensation. Historically, reported on Form 1099-MISC (Box 7), nonemployee compensation is now required to be reported on Form 1099-NEC (Box 1). The IRS and various states are requiring this form to be filed by the effective deadline, January 31, 2022.

Find more information about Form 1099-NEC changes here.

How to Prepare

Electronic filing looks like an almost unavoidable requirement in coming years. Avoid dealing with all future form updates, and the detailed requirements of these types of changes, by using an all-inclusive electronic (or paperless) filing service. Switching to a paperless solution, sooner than later, can help your company to adjust to a new process before deadlines or possible fines are looming. An authorized resource like Nelco (a leader in W-2, 1099 & 1095 forms and technology), offers complete electronic filing solutions and expert service. They even print and mail recipient copies for you. Plan early and meet all your W-2, 1099 and 1095 requirements with ease.