Tax filing is a task most small business owners don’t look forward to. And with new IRS rules coming into effect in 2025, it’s more important than ever to stay updated and prepared. These changes are aimed at streamlining tax reporting and reducing paperwork, but they also mean more responsibilities for businesses of all sizes. If you run a small business, here’s what you need to know about the updated e-filing rules.
What’s Changing in 2025?
Starting in tax year 2024 (filed in 2025), the IRS has lowered the threshold for when businesses are required to e-file certain forms. In the past, small businesses that filed fewer than 250 information returns (like W-2s and 1099s) could file them on paper. Now, that number has dropped significantly.
The new rule requires businesses that file 10 or more returns in a year to e-file them. This includes the total of all information returns combined — so if you file 5 W-2s and 5 1099-NEC forms, you’ll now need to submit them electronically.
Which Forms Are Affected?
The rule applies to a variety of forms most small businesses regularly file, including:
- Form W-2 (Wage and Tax Statement)
- Form 1099 series (like 1099-NEC for contractors)
- Form 941 (Employer’s Quarterly Federal Tax Return)
- Form 940 (Annual Federal Unemployment Tax Return)
- Form 1095-C (for applicable health coverage reporting)
- And several others
It’s important to note that it’s not about how many forms of each type you file — it’s the total number of information returns combined that matters.
Why the Change?
The IRS aims to improve the accuracy and efficiency of tax processing by encouraging more electronic filings. E-filing also reduces the risk of lost paperwork and makes it easier for both businesses and the IRS to track records. It’s part of a broader effort to modernize tax administration and speed up refund processing.
How Should Small Businesses Prepare?
If you’re a business owner who has been filing paper forms, now’s the time to get ready for this shift. Here are a few steps you can take:
1. Review How Many Forms You Typically File
Look back at the number of W-2s, 1099s, and other tax forms you issued last year. If it’s 10 or more, you’ll need to move to e-filing.
2. Choose an E-Filing Method
- Use IRS-approved software providers
- Work with a payroll service or accountant who handles e-filing
- Use the IRS FIRE system for information returns
3. Keep Deadlines in Mind
E-filing doesn’t always mean you have extra time. Deadlines for submitting forms like W-2s and 1099s typically fall at the end of January.
4. Update Your Record-Keeping Process
Having organized records makes e-filing easier and helps avoid mistakes. Keep track of payments to employees and contractors throughout the year.
Are There Any Exceptions?
In limited situations, businesses can request a waiver if e-filing would cause hardship. However, these waivers are not guaranteed and must be approved by the IRS ahead of time. Most small businesses will need to comply with the new rule.
Final Thoughts
The new IRS e-filing rules for 2025 might feel like one more thing to manage, but with the right preparation, it doesn’t have to be stressful. Moving to electronic filing is becoming the standard for businesses of all sizes, and getting ahead of these changes can help you avoid penalties and late filings.
If you haven’t made the switch yet, now’s the perfect time to review your process and talk to your accountant or payroll provider about getting everything in place for the upcoming tax season.
