Compliance Alert: What to Know About Major IRS E-Filing Changes

The IRS is making some significant changes to e-filing requirements. While it used to be that you could choose to file 1099s in paper form as long as you didn’t have more than 250 of any one type, that is no longer the case. In fact, the threshold for 2024 reporting of 2023 amounts has been reduced to an aggregated total of 10 forms of all types, and that includes more than just 1099s — it applies to W-2s and certain other forms as well. 

In this podcast, IOFM Managing Editor Royce Grayson Morse talks with Jason Dinesen of Dinesen Tax about these new requirements. He discusses which forms are impacted and what to expect if you don’t comply. There’s good news, however: The IRS’ new electronic filing system, IRIS, should make it easier to file than the old FIRE system did.

Listen in to find out how these new changes will impact your organization and how to prepare for 2024 filing. 

Jason Dinesen

Jason calls himself a bit of a tax nerd and loves helping people alleviate their fear of, and frustration with, taxes. As an enrolled agent licensed by the federal government, and a licensed public accountant, he's authorized by the US department of treasury to provide his services - from advising to tax preparation, to audit representation, to individuals and businesses throughout the nation. If that doesn't keep him busy enough, you can find Jason hosting dozens of weekly CPE webinars. He presents for accountants, tax pros, as well as industry groups, HR professionals, office managers, and more. He has 11 years in private practice, plus another 4 years working for a third-party administrator of retirement plans.

Transcription

Female Voice: Welcome to the IOFM podcast. This is a podcast for accounts payable and accounts receivable professionals who want to stay in the know with current AP and AR trends and ideas. We'll be interviewing professionals in this space on a wide variety of subjects, including automation, artificial intelligence, career growth, compliance, leadership, and much more.

Today we have an interview with Jason Dinesen. Jason calls himself a bit of a tax nerd and loves helping people alleviate their fear of and frustration with taxes. As an enrolled agent licensed by the federal government, and a licensed public accountant, he's authorized by the U.S. Department of Treasury to provide his services from advising to tax preparation to audit representation to individuals and businesses throughout the nation. 

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If that doesn't keep him busy enough, you can find Jason hosting dozens of weekly CPE webinars. He presents for accountants and tax pros, as well as industry groups, HR professionals, office managers, and more. He has 11 years in private practice, plus another four years working for a third-party administrator of retirement plans. He'll be interviewed by Royce Morse, Managing Editor of IOFM. Royce has been working with IOFM for the past eight years, writing and editing content about AP, AR, automation, and industry trends. She has worked on the IOFM Certification Guides and written associated examinations at its annual 1099 and 1042 Master Guides, conducts podcasts, and manages the IOFM website content. 

Royce Morse: Hi, Jason, and welcome. Today we're going to be talking about e-filing changes for 1099s. Before we get started, I was hoping you could tell us a little bit about your background with 1099s and how you came to know what you know about it.

Jason Dinesen: Well, absolutely. First of all, thanks for having me on your podcast.

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Royce Morse: Absolutely.

Jason Dinesen: So my background with the 1099 world is, first of all, I'm a practicing accountant, licensed in the state of Iowa as a public accountant. I'm also an enrolled agent, licensed by the Treasury Department, and I have a tax practice. This past year, for the 2022 tax year, I prepared around 175 tax returns, ranging from individuals to various types of businesses. So in my own practice, I deal with 1099 issues for my business clients, but I've been teaching as a continuing-education instructor for, gosh, 11.5 years now on 1099s.

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It was April 26^th of 2012. I went back and looked it up the other day—what was the exact date? I was a co-presenter at an all-day, in-person, eight-hour seminar at a hotel conference room on 1099s. Back then, I didn't have any special knowledge of 1099s. I know the place that put this conference on, they went down a list and they were—I think they made calls to accountants in Central Iowa, where I'm located and where this conference was, until they found three gullible souls who would show up at this hotel conference room and talk for eight hours about 1099s. 

On that, two days before the conference, one of the presenters backed out because we didn't really get paid very much for doing this, so this guy was just like, "Yeah, this is dumb. I'm not doing it." So my co-presenter and I had to scramble to fill his time. 

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I don't know how good that seminar was, but it started me down a path, and it gave me a lot of material to work with. I still draw from some of those slides that I created back in April of 2012. Obviously, I update them and a lot of things have changed in those slides, but the core of it I still draw from. We covered the whole gamut—from what are 1099s and contractor vs. employee—all of those things. The audience was mainly HR professionals, basically similar to your audience, really. It was maybe painful, but at the same time it was a good learning experience as a teacher and on the topic. 

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I did it again when that same place came around in 2014. I did it again, and they stopped after that. They haven't been back since then. I've moved on. I don't do hotel conference room stuff anymore; I do webinars. I teach continuing-education webinars to both accountants and HR professionals, accountants payable and receivable professionals, office managers, bookkeepers. It's a very diverse audience.

I give either a 1099 NEC one-hour presentation, or some offshoot of that—employee versus contractor, CP2100 notices, just different offshoots of that as webinars—almost every single day of the week. Sometimes there's so much demand that I give a webinar two times in one day. I have 25 different topics I present on; it's not just 1099s. I actually teach on a lot of different things. 

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1099s, that's the thing that people come back to. And I know, Royce, that's the thing your audience comes to a lot also, isn't it, 1099s? It's the hot topic always. 

Royce Morse: Well, it is. Part of the issue, I think, is that it's a very dynamic thing. It changes often, and you have to maintain compliance. A lot of our folks are not accountants. They don't have the background that you do; this is just part of their job. They're really concerned that they get it right and need to know as much as they can about doing it in a way that will not get them a notice. That's what I wanted to talk about to, how the rules have changed now on electronic filing, because that's a recent thing, right? That's for 2023 returns being filed in 2024, correct?

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Jason Dinesen: That is correct.

Royce Morse: Tell us a little bit about what's changed?

Jason Dinesen: The regulations came out on that in February, changing it for 2023, and the regulations—we talk about electronic filing and the electronic filing threshold, or the electronic filing mandate is what it's called. We're talking about how you file your 1099s with the IRS. Since 1987 or '88—we're talking back in like the beta days of electronic filing; that's going way back to the early days of being able to e-file things—the threshold was 250, and that's what it has been ever since. It's 250 per form, or it was. We should use the past tense, because that's changed.

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So the 250 1099 NECs, you needed to e-file them; 250 1099 miscellaneous, you needed to e-file them. If you had only had two of some other type of 1099, you could mail them in on paper if you wanted to. So if we trace the history—well, let’s just back up. Let's trace the history but cut to the chase also. Ten (10) is the electronic filing threshold for 2023. That is a drastic change. Electronic filing is coming, and people need to be prepared for it because 250 has been so ingrained. So many smaller businesses—

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When I present, I'll sometimes ask how many 1099s people are filing. Very rarely does anybody get to 250. A few people say their business files like 300. One time, someone said their business filed 8,000 1099s. 

Royce Morse: Oh, my goodness!

Jason Dinesen: Right? But most of the time, people are filing way less than 250. But when you drop it to 10, that's going to catch almost every business up in needing to file, especially when you get to the "gotcha" on this, which is that you have to combine all of your information forms to see what that count is. That's a change also. It used to be 250 for each separate form; now it's 10 and you're counting all information forms, so every single 1099, all of your W-2s, plus other things that fall under the umbrella of information returns. 

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Form 8300, for example, which is a form that relates to receipt of large amounts of cash, basically, by a business. Some of your listeners may be familiar with that form. If you take in cash, $10,000 over a certain period of time—I forget what it is, but you have to file this form with the IRS, telling them about the cash that you took in. That's considered an information form. There's various other forms that fall under that heading of information, whereas I think, for most people, it's going to be 1099s and W-2s. 

Royce Morse: That's interesting that you say—let me just interrupt you there for a second. On the W-2 thing, that's interesting. I didn't realize that that was also considered part of that aggregate total.

Jason Dinesen: It is, yeah.

Royce Morse: Here's a question for you: A lot of our members work in accounts payable, and they are not dealing with W-2s. They just deal with 1099s, because those are paid via invoice.

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How are organizations that have W-2s and 1099s that are handled by different departments working together to get that aggregate total filed electronically? 

Jason Dinesen: Well, I think that this is one of several things that should be on people's list for this time of year is to figure that out. Someone in one department is going to have to talk to someone in another department to figure out, "How many forms are we filing here?" because those W-2s need to be e-filed also then if you're past 10. The way this is works is, say you have seven employees (so you're issuing seven W-2s) and three contractors who get 1099s NECs. Maybe you send a 1099 miscellaneous to the landlord for your storefront lease. That's 11 forms in total. You have to e-file all of those.

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So I think the best answer is [that] the proper procedure, I suppose, will vary from business to business, but you're going to have to figure out: How many forms really are we filing? I always like to say on these sorts of things—and there's certain things with bookkeeping which we could talk about in a different podcast, about like getting things set up to track payments made by credit cards or through Venmo or PayPal, or maybe you don't need to issue the 1099, and making sure that your bookkeeping software can show those transactions properly. That's another thing to investigate this time of year. 

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In September, you still have (as we're recording this) three and a half months. By the time people listen to it, it might be done to like three months or two and a half months, but you still have time to figure that out. So I think the short answer to your question is [that] you're going to have to talk to each other and get those counts straight, because when you're combining W-2s plus 1099s, most businesses are going to get to past 10 and need to e-file all of them. 

Royce Morse: Yeah. I think that more than ever—this is something that we stress all the time at IOFM—AP needs to collaborate and communicate with other departments. This makes that more true than ever. In a lot of cases, you wouldn't necessarily think that AP and HR need to collaborate, but this kind of mandates it. There's really not an option. Somebody has to coordinate that effort, and then they have to decide who's filing.

Jason Dinesen: That's right.

Royce Morse: Interesting.

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Jason Dinesen: There had been—the original regulations came out in 2020, actually, and it took the IRS several years, or the Treasury Department several years, to finalize them. It had called for a stair-step approach, wherein year one the threshold would be 100, and then in year two it would drop to 10, so that businesses would have a little more time to work all of this out. But then, I don't know, the regulations seemed to get stuck and didn't go anywhere. And then suddenly they came out in February and just said, "We're setting the threshold at 10, starting in 2023."

Royce Morse: Surprise! The scorched-earth approach. [laughter]

Jason Dinesen: Exactly, that's right.

Royce Morse: Oh, my gosh. Okay, interesting. All right, well, now we know what needs to happen, let's talk about how that happens and how to do the filing, because there's this new IRIS system. Do they call it "iris" or just IRIS?

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Jason Dinesen: Well, I guess I don't know. I always call it "iris," and I always think of like a robot with a smiley face on it or something. IRIS, she's your happy helper on 1099s, I guess. [laughter] So, yes, IRIS is an option. Using IRIS is not mandatory, but it is an option. 

There's also the IRS FIRE system, which is an older system that is still in use. Some of our listeners may have a FIRE login, and if they do they can continue using that, although the IRS has said they're going to phase out the FIRE system at some point and switch everything to IRIS, but they're not quite ready to make that leap just yet on phasing out the FIRE system.

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So IRIS or FIRE, if you want to upload things through the IRS website, that's for 1099s. Some bookkeeping software will e-file now. QuickBooks online added that functionality a few years ago for e-filing both 1099s and W-2s. But then when I present—and I guess I don't know what IOFM's experience is, if anyone has ever said anything about bookkeeping software, but some bookkeeping software will prepare your 1099s, but that just means they'll put them in a format where you can print them on paper. They won't actually e-file. That's another thing to investigate: Would our bookkeeping software be able to handle that? 

Royce Morse: Yeah. Our members use a lot of different AP or P2P automation systems, so it's good to dig in and see what. it's capable of. Now, correct me if I'm wrong, but I think I had read that the IRIS system will accept file formats in various types, like a .csv file or something other than the standard FIRE system file format; is that correct? 

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Jason Dinesen: Yes. The file format in IRIS is different from FIRE, and it's supposed to be more user-friendly. The IRS just dropped—well, it's been a couple of months ago now, but there's a publication that I would highly recommend that people get their hands on if they want to use IRIS. It's publication 5717 from the IRS. It walks through how you create an account. You need what's called a TCC, a transmitter code. It tells you how to get that and then how to submit files to the IRS.

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When you look through the publication, you can upload things. It looks like you'll be able to do .csv files, like you said. You can do things in a variety of different ways that the FIRE system is not able to. 

Royce Morse: Right. And you can export a .csv file from Excel or something like that.

Jason Dinesen: Ct.

Royce Morse: So, theoretically, it's a more flexible system. Since the IRS is pushing more people to generate these electronic filings, it gives them more options to be able to comply, so that's not a bad thing. You've just got to get set up to be able to do it.

Jason Dinesen: Correct. I think one thing that we should be clear on here is that IRIS is for 1099s, not W-2s. [For] W-2s your options would be potentially your bookkeeping software or Business Services Online through the Social Security Administration, which is a fairly user-friendly system.

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Or there's some web-based platforms out there as well that usually work pretty well for 1099s and W-2 e-filing, although I think that they're probably best used by smaller businesses that only have a few 1099s, but they want to e-file them. I think if you're doing a lot of 1099s or W-2s you probably want to look at IRIS for the 1099s and then explore options for your W-2s. I think that some of those online platforms might be a little unwieldly on their users. But there are online platforms you could use. So I guess you have IRIS, FIRE, bookkeeping software, and web platforms that you could use—like websites you can go to and create an account for your 1099s. 

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Same options for W-2s, except not IRIS and not the FIRE system. You'd have to do Business Services Online with SSA.

Royce Morse: That's good information and that calls into question this for me. Obviously, you have to file an aggregate number if it's 10 or more. For W-2s you file one place and for 1099s you file them another place. But do you have to aggregate all of your 1099s into a single file to upload, or can you upload those by type, separately, as long as you do it electronically?

Jason Dinesen: You know, that's a really good question, Royce. I think we might have to table that and answer that question in our next podcast, because I'm not 100% certain on that.

Royce Morse: Okay. Yeah, that would be interesting to know. I don't know. If folks want to separate them out by type, it might be easier or it might not be.

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Yeah, if we can get an answer to that one, that's great. We could talk about that in another podcast. 

Jason Dinesen: Absolutely. I will add that to my list. I actually maintain a list based on the questions that I get in the webinars that I teach. Every single time I teach—I've been teaching on this for almost 12 years, and for the last 5 years I've given the 1099 presentation in some way almost daily, every workday almost, and I still learn new things because of things like this. People ask questions and it's like, "No one's ever asked that before and I've never thought of that either, so let me add that to the list of things."

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I know you maintain an extensive—what do you call it, the knowledge base at IOFM? There's thousands, tens of thousands of questions out there. 

Royce Morse: Yeah, we have an "Ask the Expert" feature and it's full of questions. The vast majority of those questions are about 1099 filing. Interesting. We'll probably do some more here on 1099s with you because there's so much to know. 

So what happens if, let's say, I'm a small business and I have maybe 12 1099s that I need to file and I send them in by paper? What happens? 

Jason Dinesen: They will accept 10 of them and then penalize you on 2 of them for failure to file in the proper media. That's what would happen. You get penalized. They will accept up to the maximum paper limit, which would be the first 10. But beyond that, you're out of luck; you're going to get penalized.

Royce Morse: What does a penalty look like?

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Jason Dinesen: It is the standard "failure to file" penalty that you get charged if you're late with your 1099s. It starts at $50. Actually, for 2023, it starts at $60. It's been $50 for years. It's now up to $60 and it goes up from there up to the maximum is $310 per form. It depends on how late it is before you get a form submitted in the correct format, whether it's a $60 penalty, then it goes up to $160 and then to $310.

Royce Morse: So the clock is ticking from the get-go and you'd better get on it.

Jason Dinesen: Yes. The $50 or now $60 penalty is the first 30 days. Then after that it kicks up to the $150 or $160. Then after August 1^st it goes up to $310.

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Royce Morse: Wow, okay. That gets pricey if you have a lot of forms.

Jason Dinesen: It does.

Royce Morse: Jason, one last question for you. I had heard that it's possible, if some filers can't file electronically for some reason—they have limited access to technology or something—that the IRS has made provision for that. Do you know anything about that?

Jason Dinesen: Yes. So there's a form called Form 8508 that you can fill out to get a waiver from the electronic filing requirement. That applies to all types of 1099s, plus the W-2s. Basically, all the information forms that you're required to e-file, this Form 8508 applies. You have to tell the IRS what you're hardship is and provide them with a justification. That's maybe a slight gotcha on this. It's not just "I don't want to file electronically."

00:25:05.5

I've got it pulled up here, so I'm going to just kind of paraphrase some of the things that the IRS falls under justification for an exemption from an electronic filing: undue financial hardship with the cost of filing the information returns. Here on the form you have to put what the cost to you would be to mail in your 1099s versus the software expense of e-filing. That's one thing. Another possible exemption is rural filers without access to the internet and filers that lack digital literacy. However, you're expected to make a good-faith effort to comply with the e-file requirement, and you have to show on Form 8508 the financial hardships of obtaining assistance with the electronic filing. 

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You have to tell the IRS, "Well, here's what my accountant," for example, "would charge me to file these forms," versus "Here's what the cost would be to me if I just mailed them in." Other thing that would qualify would be if your business was affected by the instructions to the form—say, a catastrophic event in a federally declared disaster area that made you unable to resume operations or have access to records. Other fires and other natural disasters—fires, floods, disasters that affect the operation of your business—death, serious illness, or some other unavoidable absence of the key person who has to sign off on everything. 

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Businesses in their first year of business and foreign entities unable to file electronically due to inability to obtain software, find a third-party provider, or other issues outside of their control. Those are the things that could get a person out of filing electronically, but it's not quite as simple as just "I'm going to just fill out this form and get out of electronic filing." You have to give information to the IRS, including cost estimates of "Here's the cost to mail in on paper. Here's the software cost." You have to prove what you're telling the IRS on this form. 

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Royce Morse: It sounds like it'd just be easier to file electronically than go through all of that.

Jason Dinesen: That would be my thought, too, just file electronically. Again, like we said earlier, you have still three-plus months at this point to get this figured out, so now would be a good time to start investigating how you're going to get this done.

Royce Morse: That sounds like good advice. Well, we'll wrap it up here. Thank you, Jason, for your help. It's been very illuminating. I know that our folks are going to get a lot of information out of this, and I'm hoping we can do some more podcasts on 1099s as we approach 1099 season. Thank you so much.

Female Voice: Thank you so much for listening to the IOFM podcast. Remember to head on over to the Member Forum to discuss today's episode and provide ideas for our next one. To stay up to date on IOFM's current events, both in-person and virtually, head on over to IOFM.com.