5 Things You Need To Know About Forms, Legislation and Compliance Requirements

December 3, 2021

Topics Covered In This Article:

IRS Rules Lower W2 Electronic Filing Threshold

The IRS proposed regulations amending the rules for filing electronically that reduce the threshold for filing W-2s. The Taxpayer First Act proposes wide-sweeping changes in an effort to modernize the IRS and improve the efficiency of the taxpayer experience when filing taxes.

This is further evidence of the government’s commitment to e-filing. The electronic filing makes processing returns much easier for the IRS.

Proposed eFiling Thresholds

As part of the Taxpayer First Act, many businesses will no longer be able to submit paper forms. For the tax year 2021, electronic filing was mandatory if the employer had 100 or more W-2s to complete. Over the next two years, the threshold will be significantly reduced.

  • In 2021, the number drops to 100 forms*.
  • In 2022, businesses filing just 10 or more forms must electronically file.

For the tax year 2021, this mandate only applies to W-2s. When these proposed changes are fully implemented, it will require businesses to count all information returns they are filing to establish whether they must eFile returns. 

*Pending IRS issuing final regulations.

General Instructions for 2022 W-4 For Employees

(This report is included in the Aatrix Unlimited eFile Package For 2022)

Future Developments 

For the latest information about developments related to Form W-4, such as legislation enacted after it was published, go to www.irs.gov/FormW4.

Purpose of Form

Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. If too little is withheld, you will generally owe tax when you file your tax return and may owe a penalty. If too much is withheld, you will generally be due a refund. Complete a new Form W-4 when changes to your personal or financial situation would change the entries on the form. 

Your privacy. 

If you prefer to limit the information provided when estimating your withholdings use the online estimator, which will also increase accuracy.

When to use the estimator. 

Consider using the estimator at www.irs.gov/W4App if you: 

  1. Expect to work only part of the year; 
  2. Have dividend or capital gain income, or are subject to additional taxes, such as Additional Medicare Tax; 
  3. Have self-employment income (see below); or 
  4. Prefer the most accurate withholding for multiple job situations. 

Self-employment. 

Generally, you will owe both income and self-employment taxes on any self-employment income you receive separately from the wages you receive as an employee. If you want to pay these taxes through withholding from your wages, use the estimator at www.irs.gov/W4App to figure the amount to have withheld. 

Non-resident alien. 

If you’re a non-resident alien, see Notice 1392, Supplemental Form W-4 Instructions for Non-resident Aliens, before completing this form.

Employee Retention Credit Ends Early

(941 and Form 7200 reports are included in the Aatrix Unlimited eFile Package For 2022)

As reported by the American Payroll Association, on November 15th, President Biden signed the Infrastructure Investment and Jobs Act, into law. The law ends the Employee Retention Credit (ERC) as of September 30, 2021 (the end of the third quarter) for most employers.

The ERC was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was set to expire on December 31, 2020, but was extended and expanded through June 30, 2021, by the Consolidated Appropriations Act, 2021. The American Rescue Plan Act of 2021 (ARPA) further extended the ERC for qualified wages paid between July 1 and December 31, 2021. 

IRS Guidance Needed

Because the provision ending the ERC early is effective retroactively, guidance is needed from the IRS to explain how the changes affect employers that reduced their employment tax deposits in anticipation of the tax credit or requested an advance of the ERC by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19, during the fourth quarter.

Credit Still Available for Recovery Startup Businesses

The ARPA also expanded the ERC to businesses started after February 15, 2020, if they have annual receipts of less than $1 million. These businesses may be eligible for the credit even if they were not shut down due to a COVID-19 lockdown order or did not experience a significant reduction in receipts. The credit for these startup businesses is limited to $50,000 per quarter.

Under the new law, recovery startup businesses can still claim the ERC for qualified wages paid before January 1, 2022.

New Employee Withholding Certificate for 2022 For Colorado

(This report will be added to the Aatrix Unlimited eFile Package For 2022)

What Is The Colorado Form DR0004?

New for 2022, the Colorado Department of Revenue (DOR) has created Form DR 0004, Colorado Employee Withholding Certificate, to help employees “fine-tune” their state withholding. The new form is optional for employees. However, beginning January 1, 2022, employers must provide the form to employees for any new adjustments to Colorado withholding. Previously, there was no state form and the Federal Form W-4, Employee’s Withholding Certificate, could be used to calculate state income tax withholding.

What Your Employees Should Know

This Certificate Is Optional for Employees If They do not complete this certificate, then employers will follow the guidelines below. That calculation is designed to withhold the required Colorado income tax due on your wages throughout the year, and it will generally result in a refund when you file your Colorado income tax return.

When the employee completes the form they must provide it to their employer. For most taxpayers, completing this certificate will likely increase your take-home pay, reduce your Colorado withholding, and reduce your refund when you file your Colorado income tax return. Consider the amounts you enter carefully. If too little is withheld, then you will owe tax when you file your Colorado return, and you may owe a penalty.

What Do Employers Do If No State Form Is Submitted

If an employee does not submit Form DR 0004, their wage withholding should be calculated using the default values on the withholding worksheet based on the employee’s federal Form W-4. Do not include any additional Colorado withholding.

If an employee does not submit a state form or a federal form, withholding should be calculated as if the employee submitted Form W-4 with a filing status of single with no other adjustments.

Illinois Labor Department Issues Press Release on Pay Data Reporting 

The Illinois General Assembly and Governor Pritzker adopted changes earlier this year that require private businesses with 100 or more employees to report certain payroll information to IDOL in 2022. This is part of a change to the Illinois Equal Pay Act of 2003.

Businesses were asked to submit three email contacts to the IDOL by November 3, 2021. Future communications will be transmitted via these contacts to businesses. The IDOL issued a press release with details about the first step in Illinois’ new pay data reporting requirements. Because this release was not issued until October 25, 2021, many businesses have not yet complied. The release is on official state letterhead and contains a link that employers can use to submit contact information. The IDOL will send additional instructions via email.