New Payroll Reporting Rule Means Headaches for Employers

A new IRS rule covering how employers file information returns could mean headaches for employers when it becomes effective on January 1 (2019). At least one organization, the American Payroll Association (APA), has made it clear that businesses of all sizes are not ready for implementation. Payroll industry advocates are urging delay of the rule until at least 2020.

There are quite a few issues with the rule as currently written. Among them is the fact that it has not yet been finalized. Expecting employers to get ready for a January 1 implementation when they do not know what the final rule will actually require is both impractical and unreasonable. With each passing day, employers have one less day to get ready.

Mandating Electronic Reporting

The APA is very much in favor of electronic reporting according to a letter they sent to the IRS in July 2018. But like so many others, they are concerned that the rule’s requirements are too extensive to reasonably expect implementation in 2019. As for the rule itself, its main objective is to mandate electronic filing of all informational returns.

Informational returns are returns that businesses must file in order to notify the IRS of certain transactions that do not involve wage dealings. For example, the 1099-MISC form is considered an informational return inasmuch as it provides the IRS with information about money paid to a subcontractor. That money is not considered wages because the subcontractor is not employed by the company.

Employers have always had the option of filing informational returns using paper forms. The IRS has been working on changing that since the mid-1980s, but never before have they been as close to getting it done as they are now. If nothing changes between now and the first of the year 2019, all informational forms for 2019 will have to be filed electronically.

Problems for Employers

So, why are so many payroll providers and employers concerned about the new rules? There are plenty of reasons, explains BenefitMall. First and foremost is the myriad of informational forms businesses currently have to file. There are so many of them that it can be hard to keep track. That leads us to many of the other problems cited by BenefitMall:

  • Multiple Departments – Having so many informational forms to deal with has led many companies to involve multiple departments in completing and filing them. The new rule essentially forces companies to consolidate everything into a single solution. They can do that, but they need more time.
  • Incompatible Software – Current payroll software solutions may not be set up to handle electronic filing of informational returns. Furthermore, software developers are not going to implement the necessary changes until they know what the final rule is going to say. That means some applications will not be ready to go on January 1.
  • Employee Training – Affected employees will have to be trained in order to comply with the reporting rules. Expecting companies to complete that training heading into the busy holiday season is not really practical.
  • Security Clearance – Lastly, companies are going to have to obtain secure security clearance in order to file electronically. Getting the required clearance is not difficult, but employers will not know who needs clearance until they know the final rule. Again, this is a time issue.

The IRS contends it is doing the right thing by mandating electronic filing. Few employers and payroll providers would dispute that point. Their only contention is that implementation should be delayed until 2020 in order to give everyone involved more time to get ready.