There have been frequent reports in the news about delays at the IRS when it comes to processing returns. Between the COVID-19 stimulus payments, last minute changes to tax laws, and the pandemic in general, the IRS has been behind.

What does this mean for business owners?

It depends. Are you filing your payroll and employment taxes electronically? If the answer is yes, then the delays may not impact you as severely as those businesses that file paper returns.

The IRS has been increasingly encouraging businesses to e-file their payroll and employment taxes. Specifically, the IRS cites three main reasons to file these taxes electronically:

• It saves time
• It’s secure and accurate
• The filer gets an email to confirm the IRS received the form within 24 hours

For those businesses that continue to file paper returns, additional headaches may be in store.

According to the update provided on the IRS website, as of June 9, 2021, the IRS had approximately 33,000 Forms 941 that had been received prior to 2021 still waiting to be processed. When adding these to the Forms 941 received this year, they had 2.5 million unprocessed 941s in the pipeline.

While IRS is actively taking steps to alleviate delays such as diverting tax returns and correspondence to locations where more staff are available, the returns are still filed in the order they are received.

For businesses that e-file their payroll and employment taxes, the filer receives an email within 24 hours to confirm that the form has been received. For those who file paper forms, the IRS is asking businesses not to file a second return or contact the IRS about the status of your return despite substantial delays.

For businesses that e-file their payroll and employment taxes, this means that they have the security of knowing that their returns have been received. Plus, there is less opportunity for error because it eliminates the manual processes that are involved with handling and processing paper returns such as hand-keying in information. Hand-keying returns not only delays the process, it can result in additional issues such as notices, penalties, and added interest.

When it comes to filing taxes electronically, businesses are required to use IRS tax software, which can flag errors that may cause processing delays by the IRS – errors that otherwise would not have been found until someone was manually processing the return, thus causing even further delays.

This also means that businesses that file their payroll and employment taxes electronically receive their Employee Retention Credit (ERC) more quickly. Form 941-X, which is used for the ERC, cannot be processed for any quarter until their original Form 941 is processed. The slower it takes to process the tax return (and manually sift through any possible errors), the longer the wait for businesses to realize this credit.

Employers submitting the electronic forms themselves will need to purchase IRS approved software, and there may also be a fee to file electronically. Employers can also opt to have their tax professional file the form for them, however, they must find a “Electronic Return Originator” that has been certified by the IRS to file the electronic return (there is a search function on the IRS website to find them). Companies that have this certification often obtain the software and then sell "subscriptions" to use their software to file. That means the client has to have their staff use the software and file the return. This may cost up to $50 per form or more to use the software. There are not a lot of companies that have this certification.

TRICOM clients who are Full Service or Admin Only have the security of knowing that TRICOM already processes and submits their payroll and employment taxes electronically. Our internal team of degreed accountants — who know the ins and outs of the tax code as it relates to staffing companies — prepare these returns and are able to submit them on the IRS approved software. Funding Only clients who have their taxes processed by TRICOM will also have their payroll and employment taxes filed electronically for a nominal fee.

If you have any questions about electronic tax filing, please reach out to your TRICOM accounting representative.

Sources:
https://www.irs.gov/newsroom/irs-operations-during-covid-19-mission-critical-functions-continue
https://www.irs.gov/newsroom/filing-payroll-taxes-electronically-makes-good-business-sense