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The Electronic Tax Administration Advisory Committee (ETAAC) recommends the IRS prioritize e-filing of all 94X returns and enhancing duplicate 94X processing.

The IRS has a significant backlog of 941-X returns (961,000 as of April 12, 2023). The goal of the IRS is to reduce or eliminate all paper filings. ETAAC agrees with this goal as it will streamline and accelerate the processing of all taxpayer returns.

ETAAC commends the IRS for reducing the threshold for electronic filing of most information returns (including W-2’s 1095’s, 1099 series) from 250 returns to 10 or more returns in a calendar year. This means that any organization that files 10 or more returns in a calendar year will be required to e-file after December 31, 2023. ETAAC recommends that Congress introduce a similar regulation for 94x series returns, and specifically Form 941, to increase electronic filings and reduce the processing backlog.

ETAAC is pleased the IRS will include a mobile-friendly way to file 940, 941, and 944 returns. ETAAC is happy to provide feedback or participate in user-testing for this new capability.

The IRS specifically stated that 94x series returns have the highest percentage of paper filings. IRS statistics show Form 940 - 47.2% are paper filed (2021) and Form 941 - 49.7% are paper filed (2021). Today the only way to e-file Form 941 is directly from software to the Modernized e-File (MeF) system in XML format. This limits the possibility for many businesses to e-file for free.

Today, amended Form 941-X cannot be filed electronically. Taxpayers must mail and the IRS manually processes these 941-X Forms. It takes the IRS on average six months to process amended returns Forms 941-X. ETAAC recommends having an electronic option. This would speed up processing and problem resolution.

ETAAC recommends the IRS provide a portal for filers to upload original and amended 94x series returns electronically starting January 1, 2024.

ETAAC suggests that the IRS create a line-by-line input like the current W-2 line-by-line input (BSO website) and authenticate filers using Transmitter Control Code (TCC). Alternatively, ETAAC suggests the IRS create a way to download and automatically upload a 941 image (i.e., pdf) to the IRS system.

Enhance Duplicate 94X Processing

ETAAC recommends the IRS enhance and automate its current mechanism for determining which return to process when duplicate quarterly 941 forms are submitted. For example, when a taxpayer files two returns for the same quarter due to a client terminating their payroll processor mid-quarter, both processors file 941 returns for the amounts reported which could lead to the overstatement of deposits and liabilities.

ETAAC understands the IRS has a process to review duplicate submissions to determine taxpayer intent and accordingly updates the taxpayer’s account. However, the IRS might be able to eliminate human intervention by implementing automated business rules to determine which return to process. In cases where the system is not able to determine which return to process, the IRS can reach out to the taxpayer via their online account to specify which return to process. ETAAC suggests the IRS create a history record table to show each filing, filing date, and the user that filed each return, creating a unique record locator with a linked image of the filing which will help the taxpayer easily and quickly determine the correct return.