Do 1099 have to be filed electronically

Forms W-2, 1099-MISC, 1099-R and W-2G are required to be filed electronically with DRS.   If you are submitting 24 or fewer Forms W-2, 1099-MISC, 1099-R or W-2G you are encouraged to file electronically but may file paper forms.

• IP 2021(15), Forms 1099-R, 1099-MISC, and W-2G Electronic Filing Requirements for Tax Year 2021
  (DRS no longer requires the filing of Form 1099-S or Form 1098.)
• IP 2021(16), Form W-2 Electronic Filing Requirements for Tax Year 2021.

DRS may waive the electronic reporting requirement if an employer or payer can show hardship. To do so, you must complete and submit  Form CT-8508, Request for Waiver from Filing Information Returns Electronically, to DRS at least 30 days before the due date of the information return. DRS will only notify you if your request is denied. If a waiver is granted, the information returns must be submitted on a CD rather than paper. DRS does not accept magnetic media including cartridges or cassettes.

• If the waiver request is approved, payers filing 1099-R, 1099-MISC, and W-2G must submit them with Form CT-4804, Transmittal of Information Returns Reported on CD, by January 31st.

• If the waiver request is approved, employers must submit Forms W-2 with Form CT-6559, Submitter Report for Form W-2 CD Filing, by January 31.

•  The due date to submit Forms W-2 to DRS is January 31.

• The due date to submit Forms 1099-MISC, 1099-R and W-2G electronically to DRS is January 31.  Exceptions to the electronic filing requirement are in General Information and Waiver Request Information above.

  Historically, the IRS required 1099 filers of 250 or more forms to file electronically (e-file). For businesses filing fewer than 250 forms, the IRS allowed paper filings. However, the 1099 reporting process will soon be almost completely electronic. The state of Oregon made a similar change in 2018, and the trend is about to go federal. Over the next two years, the IRS will drastically decrease the threshold for submitting paper forms. By calendar year 2022, if your business files more than 10 forms, you will be required to e-file. With such a low threshold, nearly every business that submits 1099s will be e-filing. And it will be up to their tax or finance teams to ensure they have all the technology and processes in place to remain compliant. 

  Decreasing thresholds for e-filing

  The IRS will reduce the thresholds for e-filing as a part of the Taxpayers First Act of 2019. In calendar year 2021, reporting tax year 2020 information and prior tax year’s information, businesses that file 100 forms or fewer can still submit via paper. This is a 60 percent decrease from the original 250 form threshold. For calendar year 2022, that threshold plummets by 96 percent when compared to the original threshold. And in calendar year 2022, if you file more than 10 forms, you’ll have to submit electronically.

  The IRS will apply separate thresholds to partnerships for e-filing. The IRS defines partnerships as “any two persons or organizations through which a business, financial operation, or venture is carried on and which is not a corporation, trust, or estate”. Thresholds for partnerships will decrease year after year, but more gradually than for non-partnerships. Below are the specific thresholds for e-filing by calendar year:

  • 2019: Businesses that file 150 forms or fewer can submit via paper.
  • 2020: Businesses that file 100 forms or fewer can submit via paper.
  • 2021: Businesses that file 50 forms or fewer can submit via paper.

  The IRS already noted this change on the first page of the drafted version of the 2020 General Instructions for Certain Information Returns and will likely include it in the final version, as well. However, many businesses are not aware of this document. Without a large legal team or a trusted vendor, they would have no way of knowing about this major change in thresholds.

  The need for e-filing

  The IRS mandated the move to e-filing for multiple reasons. For one, moving from paper filing to e-filing saves IRS agents thousands of hours they would normally spend manually processing paper 1099 forms. Additionally, e-filing eliminates the cost of printing and mailing, reduces the risk of paper forms getting lost in the mail, decreases the chance of exposing personally identifiable information and is better for the environment.

  Despite these benefits, thousands of businesses across the U.S. still use paper filing. According to Publication 6961, 30 percent of all 1099-MISC forms the IRS receives are still filed by paper, and 93 percent of all forms filed to the IRS by paper are 1099-MISC forms. Altogether, more than 30 million 1099-MISC forms are still filed by paper.

  How to prepare for e-filing

  By calendar year 2022, if your business files more than 10 forms, it will be required to e-file. Review your existing paper-based processes and begin preparing for e-filing today. Failing to do so could mean penalties of up to $270 per return. Your business can avoid these penalties by finding a vendor that can e-file to the IRS on your behalf.

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  David Dobbins

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