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The IRS recently announced a major change to the e-filing requirements for tax preparers in 2023. The e-filing threshold – meaning the number of returns a tax preparer must file electronically – has been drastically reduced from 250 to only 10 returns for Form 1099, W-2 & ACA 1095 forms. Businesses that were once able to file 250 of each information return on paper can now only file a total of 9 returns. This announcement carries significant implications for tax preparers and filers entering the 2023 tax season, as it will impact their year-end filings in January.What is E-filing?
E-filing, or electronic filing, is the process of preparing and submitting tax returns over the Internet using IRS-approved tax software or through authorized IRS e-file providers. It allows both taxpayers and tax professionals to file returns electronically rather than mailing in traditional paper returns.
Benefits of eFiling
There are many benefits to e-filing tax returns rather than submitting them on paper:
Faster Processing and Refunds – filed returns are generally processed within 21 days versus 6-8 weeks for paper. Direct deposit refunds also arrive much quicker.
Increased Accuracy– Electronic filing eliminates errors from manual data entry and speeds up error checking.
Cost Effective– e-filing provider fees are generally cheaper than paper filing and postage costs.
Sustainable– Reduces paper usage and the need for physical storage space.
Simplified Recordkeeping – Electronic returns are stored online for easy access and retrieval.
Up until now, businesses and tax preparers were only required to e-file if they were expecting to file 250 or more of each information return per year. This was put in place to allow smaller preparers time to adapt their processes to electronic systems. However, as of December 2022, the IRS announced that this threshold is being cut down to just 10 returns annually.
What This Means for Tax Preparers
This change has huge implications for paid preparers heading into the 2023 tax season. Unless eligible for a hardship waiver, any tax preparer completing more than 10 returns must utilize IRS e-filing systems to submit them. This will require all preparers surpassing the new threshold to:
- Obtain an Electronic Filer Identification Number (EFIN)
- Use IRS-approved e-filing software
- Complete IRS e-file application and tests
- Maintain high-speed internet access
For some smaller firms and solo preparers who previously only filed paper forms, this means overhauling their systems and getting up to speed on filing accuracy and requirements within the next couple of months before tax season hits.
Those unable to meet these demands would have to seriously consider outsourcing overflow return preparation and e-filing rather than risk penalties.
The Upcoming 2023 Tax Season Just Got More Complicated
The IRS has clearly shown they are getting increasingly serious about transitioning all paid tax preparation to electronic systems instead of traditional paper filing. Their drastic reduction of this threshold down to just 10 returns is going to complicate matters for many smaller preparers right before tax season ramps up.
Preparers who are ineligible or unequipped for filing will need to quickly assess the changes required to come into compliance or face penalties. With little time before filing kicks into high gear, firms without e-filing capabilities will need to act swiftly if they wish to remain operational for 2023.
While mandatory e-filing promises benefits like increased accuracy and faster processing down the line, this short-notice announcement by the IRS will certainly prompt headaches and growing pains for paid preparers impacted by the lowered threshold heading into what is already gearing up to be a challenging tax season.
Conclusion
The IRS has dropped the annual e-filing threshold requirement 10-fold, down from 250 to just 10 returns yearly. This will require many smaller preparers to overhaul systems and quickly get up to speed on e-filing rules and software before the 2023 tax season hits its peak.
As the IRS e-filing mandate expands, tax professionals should consider e-filing solutions like TaxBandits to smoothly transition their workflow. TaxBandits supports e-filing W-2, 94x, W-9, ACA, and 1099 forms. It offers various features such as bulk filing, TIN verification, schedule filing, distribution of recipient copies via postal mail or online, and more. By leveraging user-friendly tax software like TaxBandits, businesses can efficiently file Form 1099 online and avoid penalties while focusing on servicing their clients this coming tax season.
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