Weighing Your Tax-filing Options:
Paper, Software or E-file?
When it comes to annual information reporting for your employees and independent contractors, you have three filing options: paper, software
Paper filing is the oldest and most traditional method of the three. Software acts as a bridge between paper and electronic filing — and can help ease the transition when updating your procedures. Then there’s electronic filing, which, for most businesses, represents the most streamlined and efficient process for meeting
the reporting requirements.
Let’s take a closer look at all three options and what you can expect from each:
Old-fashioned paper filing is responsible for much of the frustration businesses experience with annual filings. It can be a lengthy and tedious process, especially when dealing with changing IRS rules and requirements.
To manage paper filing, you’ll need to purchase the proper forms, fill in the detailed information manually and mail out the appropriate copies to the recipients and the IRS or SSA.
This may be a costly and time-consuming undertaking for a number of reasons:
- Paying for a pack of forms (often 25 or more) when you only need a handful
- Time it takes to complete, print and mail multiple forms
- Having to fill out Form 1096 and/or W-3 transmittals
- Security risks when mailing forms
- Potential for mistakes and lost forms
If you’re not quite ready to complete your W-2s and 1099s electronically —
but want to move beyond paper forms — software is a solid choice.
Often available in sets of 10, 25 or 50, software kits contain W-2 or 1099 forms with matching envelopes. They also include software with the necessary tools for creating and printing forms, as well as delivering them to recipients and filing with the IRS or SSA.
Although this is a more efficient option than paper filing, there are still factors to consider, including:
- Cost of software
- Time it takes to download or install software on your computer
- Keeping up with software upgrades
- Potential printer mishaps (misalignment issues, paper jams, etc.) with forms
For many businesses, the challenges with paper and software-based filing are eliminated with electronic filing. By handling your annual tax information reporting “in the cloud,” you can tap into:
- Convenience — Instead of navigating software or managing piles of paperwork, you follow a few easy, step-by-step prompts when filing online. Upload data with Excel templates, or import data directly from QuickBooks Online and other popular accounting apps. Any questions you have along the way can be answered by Customer Service reps or via help files and tutorials.
- Affordability — When you do the math, you’ll find that online filing is much more affordable than stocking forms and/or maintaining software. You pay only for the number of forms you file, even if it’s only one or two. As a complete solution, e-filing also eliminates the expense of printing and mailing preprinted forms.
- Labor Savings — In addition to the dollars and cents impact of paper and software-based filing, there are the labor costs to consider. Because e-filing is a highly streamlined and efficient process, you save valuable staff time and output associated with printing, mailing and manually submitting 1099s and W-2s.
- Ease of Use — Say goodbye to frustrating misalignment issues or paper jams with your printer. Online 1099 and W-2 forms looks just like the paper forms from the IRS, where you select the payer and recipient from the drop-down lists and fill in the required “boxes.” If you’re missing information, you can save partially completed forms in your account and return later to complete
and file them.
- Accuracy — You can quickly change any incorrect information on a form before you’ve checked it out. If it’s an error on a submitted form, simply follow the step-by-step instructions to file a correction form directly through the site.
How an E-filing Provider Becomes IRS-approved
As with everything related to the IRS, the process an e-file provider goes through to become IRS-authorized is fairly intensive. Only IRS-authorized e-file providers can use the official IRS logo, which reads “Authorized Provider IRS E-File.”
Obtaining this exclusive logo requires completing three steps:
- Create a provider account with the IRS
- All staff associated with tax matters must also sign up for IRS e-services. The IRS then sends out a confirmation code by mail to the principle contact. This code must be confirmed within 28 days of the send date.
- Fill out the IRS application
- Typically it takes a minimum of 45 days for a provider to become approved. In addition to filling out information about the business itself and every key individual in the business, the provider applicant must submit fingerprints of each key individual. Fingerprints must be obtained by a professional (such as a police officer) and must be submitted via
a special IRS card used only for fingerprints.
- Pass all of the IRS’s “suitability checks”
- Once the application has been completed and all of the required information has been submitted, the IRS now conducts its own series of suitability checks. These checks can include (but are not limited to) credit and background checks, tax compliance/non-compliance checks and criminal history checks. Only if the applicant passes all of these checks will the IRS generate an acceptance letter. This letter will include the applicant's EFIN (electronic filing identification number).
Selecting an e-file provider is easier and safer when you focus only on those providers that have obtained the IRS’s authorization to provide e-filing services.
Choosing an E-file Provider
Yes, there are many e-file providers that would love to have your business.
But did you know that only a handful of these use printers the IRS has vetted and authorized to print official tax forms? The truth is, the e-filing field regulates itself, which means it’s up to you to select a trustworthy and secure provider.
You need to look for all of the following in your e-file provider:
- An IRS-authorized printer for printing tax forms
and official tax documents
- Government-recommended encryption programs to keep your sensitive data secure
- End-to-end encryption for all your data (this means as soon as you enter data into an online form with your e-file provider, it’s already encrypted, and it stays encrypted throughout the filing, printing and mailing process)
- SOC certified with the American Institute of Certified Public Accountants (AICPA)
- Never releases or sells your information to any third party
during or after you’ve received services (unless the law specifically requires it)
- A secure facility from which to print out and mail all
the necessary forms
Finding a provider with SOC certification means you’re on the right track, but be aware the burden is on you to find an e-file provider that keeps your company
and credit card information secure and encrypted from start to finish.