© 2023 American Payroll Institute, Inc. States Impacted by IRS Finalizing Rules To Lower Electronic Filing Threshold for 2024 The IRS finalized regulations to reduce the threshold requirement for filing information returns (e.g., Forms W-2, 1099) electronically from 250 to 10 for returns required to be filed on or after January 1, 2024 [88 F.R. 11754, 2-23-23]. Beginning in 2024, all of a business’ information returns will be aggregated to calculate if the 10-return threshold is reached. This will impact states that currently follow the federal filing threshold for Forms W-2. The final regulations reflect changes made by the Taxpayer First Act of 2019 (TFA), which has a goal to increase electronic filing. The final regulations also withdraw regulations the IRS proposed in 2018 to amend the rules for determining whether information returns must be filed electronically. 2023 threshold is still 250 Because the final regulations will not apply until calendar year 2024, the proposed electronic filing thresholds of 100 for returns required to be filed in calendar year 2022 and 10 returns for returns required to be filed in calendar year 2023 were not adopted. The electronic filing threshold for returns required to be filed in calendar years 2022 and 2023 remains at 250. However, the final regulations do lower the threshold to 10 for returns required to be filed on or after January 1, 2024, as authorized by the TFA. Aggregation of returns Currently, the electronic filing threshold applies individually to each type of information return. Under the final regulations, with a few exceptions, all information returns required to be filed during the calendar year will be counted in the aggregate. One exception to the aggregation rule is that corrected information returns are not counted in determining whether the 10-return threshold has been met. The final regulations clarify if the IRS’s systems do not support electronic filing for a specific return required to be filed electronically with the IRS, a taxpayer will not be required to file the return electronically. Impact on state filing requirements The following states have a filing threshold of 250 returns for Forms W-2: Arkansas (magnetic media accepted), Colorado (follows federal requirements), Delaware (follows federal requirements), Georgia (follows federal requirements), Idaho (250 employees and 50 or more working in Idaho), Maine (follows federal requirements), Michigan (magnetic media accepted), Missouri, Rhode Island (federal requirements and 25 employees in Rhode Island magnetic media accepted), and South Carolina. Some states may have the ability to meet and match the lowered filing thresholds, while others may need more time to implement the requirements. The lowered threshold will apply to 2023 forms due in 2024. The following states have a filing threshold of 50 returns for Forms W-2: Kansas (51 or more employees), Louisiana, Massachusetts, and Nebraska. The following states have a filing threshold of 25 returns for Forms W-2: Alabama, Connecticut, District of Columbia, Indiana (withholding statements in aggregate), Kentucky, Maryland, Mississippi (also if employer used a single payroll service provider for the entire calendar year or employee leasing company-provided personnel), New Mexico, Vermont, and West Virginia. The following states have a filing threshold of 10 returns for Forms W-2: Minnesota, Ohio, and Wisconsin. The following states and Puerto Rico require all employers to file Forms W-2 electronically: Arizona, Hawaii, Illinois, Iowa, New Jersey, North Carolina (paper accepted if unable to file electronically), North Dakota, Oklahoma, Oregon, Pennsylvania, Utah, and Virginia. Montana has no electronic filing threshold. California and New York do not require Forms W-2 to be filed with the state. Note: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not have a state income tax. New Jersey Court Declines to Apply ABC Test to Real Estate Salespersons A New Jersey appellate court held that the ABC test for employment status does not apply to fully commissioned real estate salespersons [Kennedy v. Weichert, No. A-0518-19 (N.J. Super. Ct. App. Div., 1-30-23)]. A salesperson claimed that the employer broker violated the New Jersey Wage Payment Law (WPL), which prohibits unpermitted withholding from employee wages, when it deducted “marking, insurance, and other expenses” from the salesperson’s payments without authorization. Background The broker claimed that the salesperson was not an employee given that the written agreement defined him as an independent contractor. Under the WPL, an employee is “any person suffered or permitted to work” except March 6 ,2023 Volume 25 Issue 5
Next Page