Payroll in Practice: 12.26.2023

Question: An accounting firm files Forms W-2 for itself and certain clients. In the past, the firm filed paper forms because the total number of forms filed by the firm was less than the 250-form e-filing threshold. The firm and clients each have fewer than 10 employees. Does the new 10-form e-filing threshold apply separately to the firm and each client, or is it based on the total number of forms filed by the firm?

Answer: The 10-form threshold at which e-filing is required applies to each person that is required to file at least 10 forms during a calendar year. The firm and each client are separate persons for the purpose of the threshold.

The term “person” is construed broadly and includes entities required to file information returns, such as partnerships, corporations, estates, trusts, not-for-profit organizations, governmental entities, and individuals, under 26 CFR §301.6011-2. For purposes of the 10-form filing threshold, members of a consolidated group of companies are considered separate persons.

The concept of separate persons or entities is indirectly supported by the Transmitter Control Code application for the Information Return Intake System (IRIS). IRIS is the information return submission portal the Internal Revenue Service rolled out in early 2023. A person, still construed broadly, can apply to file information returns either as an issuer or a transmitter. An issuer files only its own returns. A transmitter files its own returns and also files returns for other issuers.

Regulation 26 CFR § 301.6011-2 relates to the required use of electronic forms. It provides, in sort of a back handed way in paragraph (c)(1), that during a calendar year, no person is required to file information returns electronically unless that person is required to file at least 10 returns during that calendar year. The paragraph also provides that persons required to file fewer than 10 returns during the calendar year may file returns on paper or electronically.

The new filing threshold applies to forms that are required to be filed electronically if the filer is required to file 10 or more forms. The prior rules had a “no aggregation” rule that applied a 250-form filing threshold separately to each type of form. For example, a company that was required to file 300 Forms W-2, 120 Forms 1099-NEC, and 253 Forms 1099-INT could file the Forms 1099-NEC on paper but was required to file the Forms W-2 and 1099-INT electronically.

The regulation identifies the information returns subject to the new e-filing rules. Paragraph (b) identifies the forms and series of forms required to be filed electronically if the threshold is met. Paragraph (b)(1) identifies Forms 1042–S, 1095–B, 1095–C, 1097–BTC, 1098, 1098–C, 1098–E, 1098–Q, 1098–T, 3921, 3922, 5498, and W–2G as well as the 1094, 1099 and 8027 series of forms as required to be filed electronically. Paragraph (b)(2) identifies Forms W-2. 499R-2/W-2PR, W-2VI, W-2GU, and W-2AS as required to be filed electronically.

Paragraph (c)(4) describes how to calculate the number of returns for determining when the e-filing threshold is reached. In short, the returns described in paragraphs (b)(1) and (b)(2) must be counted in the aggregate. For example, if a person required to file returns during the calendar year is required to file seven Forms W-2 and three Forms 1099-NEC, that person is required to e-file all 10 forms despite having to file the Forms W-2 with the Social Security Administration and separately filing the Forms 1099 with the IRS.

Paragraph (c)(4) also provides that returns that are not listed in paragraphs (b)(1) and (b)(2), as well as corrected returns, are not included when determining whether the e-filing threshold is reached.

It is also important to review the regulations governing specific forms to determine the aggregation rules for those forms. For example, under regulation 26 CFR § 54.6011-3, a filer is required to file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, electronically if required to file at least 10 returns of any type, including information returns such as Forms W–2 and 1099, income tax returns, employment tax returns, and excise tax returns.

There are several systems available for e-filing information returns, and most require registration. Forms in the 1099 series and certain other information returns may be filed through the IRS’s IRIS or Filing Information Returns Electronically (FIRE) systems while forms in the 1095 series are filed through the Affordable Care Act Information Returns (AIR) system. Each of those systems require a separate TCC to file directly with the IRS. An issuer that does not have a TCC may also file through a third-party service provider that has the appropriate TCC. Forms W-2 may be e-filed with the SSA using Business Services Online or through a third party.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

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