TAP F04-060

Forms 941, W-2, W-3 & W-4 Electronic Filing Issues

Statement of Issue:

The Committee was charged with exploring the possible barriers for small businesses in the use of electronic filing of payroll and tax reporting information. Specifically; (1) why they do or do not use electronic filing that is currently available, (2) their attitudes and opinions toward electronic filing, and (3) what might encourage greater use of electronic filing of forms 941, Employer’s Quarterly Federal Tax Return ,W-2, Employer’s Wage and Tax Statement, and W-3, Employer’s Transmittal of Wage and Tax Statement.

Proposal:

The Committee surveyed small business owners and practitioners and found three categories of issues: educational, financial, and procedural.

Reaching out to the small business community to survey their processes and opinions took a great deal of time and effort. That effort is evident in the Committee’s understanding of the issues and is reflected in its recommendations.

Education is a key component of IRS efforts to encourage small businesses to utilize the electronic filing tools that are available to them.

1. The Marketing Strategies Group is currently reviewing all publications, documents and notices to assure a prominent and consistent message is displayed relative to electronic filing and payment programs.
2. E-File and E-Pay posters are currently displayed in IRS service locations and the marketing group is studying opportunities to have them posted in business centers, such as offices of the Small Business Administration, the Social Security Administration, and educational institutions that serve as incubators for new businesses. Post offices and libraries, with their own areas of interest, have historically been less supportive of these messages.
3. While the IRS no longer has the resources to host small business workshops, it is leveraging the resources of other organizations, such as SCORE, and tax practitioners to include e-file and e-pay messages in their workshops and presentations.
4. IRS actively markets e-pay to new business owners. The Marketing Strategies Manager is in the process of determining if e-file materials are included among the products sent to those receiving a new EIN.
5. IRS has consistently found that mailing pamphlets or other marketing materials directly to taxpayers is not productive. Taxpayers either throw them away once they realize they are not specific to their tax obligations, or turn the materials over to their tax return preparers.

Financial incentives to electronically file tax returns have long been given consideration. However, such initiatives face enormous hurdles.

1. Tax credits to reimburse taxpayers for expenses incurred require legislation and would result in considerable cost to the government.
2. Establishment of a “penalty” fee for paper filing would also require legislation, however it is considered unlikely that Congress would create a fee for taxpayers to do what they are legally required to do.
3. A more likely opportunity is one that would offer new or the smallest businesses the capability to file on-line at no cost. The success of Free- File for individual taxpayers supports this recommendation. The Marketing Strategies Manager plans to explore this recommendation with IRS’ office of Electronic Tax Administration.