Electronic Filing Improvement Act

Summary#

This bill would change the Internal Revenue Code so employers can file and pay employment taxes electronically. The IRS must provide a fully automated electronic process within 1 year and prioritize making Form 941-X (adjusted quarterly return) available first. The bill creates a new employer tax credit of $1,000 for the calendar quarter when an employer first files and pays quarterly employment taxes fully electronically, and an additional $1,000 in the following year for one elected quarter. The credit is limited to the amount of applicable employment taxes and excess can carry forward to the next quarter. If an employer later stops filing electronically, the tax for that later quarter is increased by the amount of the earlier credit and no further credits are allowed, with exceptions for extraordinary circumstances and for third-party providers who electronically file at least 99% of returns in the prior year. Government entities generally cannot claim the credit, except certain 501(c)(1) organizations.

The bill also adds a $250 user fee for each paper submission of quarterly or annual returns tied to payroll taxes, with exceptions and waivers (for example, first and second paper submissions are waived, lack of broadband access, emergencies, identity-theft victims, and high-performing third-party filers). The credit rules apply to calendar quarters beginning after enactment. The paper-filing fee applies to returns for periods ending more than 2 years after enactment.

What it means for you#

  • Employers: You could get a $1,000 credit the first quarter you both file and pay employment taxes fully electronically. You could get one more $1,000 credit in the next year for a quarter you choose.
  • If you stop filing electronically after claiming the credit, your taxes for the later quarter are increased by the credited amount and you cannot claim more credits, unless an exception applies.
  • Payroll service providers and other third-party filers that send at least 99% of returns electronically in the prior year are protected from credit recapture and from the paper-filing fee for qualifying returns.
  • Employers who file on paper may face a $250 fee per return, but there are exceptions for lack of broadband, emergencies, identity-theft victims, first and second paper submissions, and other circumstances the IRS allows.
  • The IRS must make electronic filing and payment a fully automated and convenient option, and must give priority to updating Form 941-X.

Expenses#

No publicly available information on costs or budgetary effects. The bill directs the IRS to make technical and business changes and creates credits and user fees, but the text does not include cost estimates or budget numbers.

Proponents' View#

Supporters say businesses and their third-party representatives should be able to file all employment tax forms electronically. The bill frames current paper reliance as unsustainable, says obstacles are structural and behavioral, and urges the IRS to streamline electronic filing while using tax incentives to encourage electronic use.

Opponents' View#

No publicly available information.