A landscaper with two employees and six subcontractors used to mail in paper W-2s and 1099-NECs every January without a second thought. This year, the IRS rejected the paper filing and flagged it as non-compliant. Nothing about the business changed — the rule did. Eight forms that once sailed under the radar are now eight forms that count toward a threshold most small business owners have never heard of.
If you issue any combination of W-2s, 1099s, or other information returns, this affects you, and the math is a lot less forgiving than it used to be.
The Threshold Nobody Told You About
For decades, the IRS only required electronic filing once a business crossed 250 returns of the same form type in a calendar year. File 200 Form 1099-NECs? Paper was fine. File 240 W-2s? Also fine. That threshold was generous enough that the overwhelming majority of small businesses never had to think about e-filing at all.
That's gone. Beginning with returns filed for the 2023 tax year (and continuing every year since), the IRS aggregates all your information returns together, across every form type, and the threshold to trigger mandatory e-filing dropped to just 10 total returns combined.
That's not 10 per form. It's 10 total, added up across every category of return you file. A business that issues four W-2s and seven 1099-NECs isn't filing two small batches anymore — it's filing 11 returns, and every single one must go in electronically, including the W-2s.
Which Forms Actually Count Toward the 10
The aggregation rule pulls together far more form types than most business owners expect. The most common ones for a small business include:
- Form W-2 — wage statements for employees
- Form 1099-NEC — nonemployee compensation (contractors, freelancers)
- Form 1099-MISC — rents, prizes, legal settlements, and other miscellaneous payments
- Form 1099-INT / 1099-DIV — interest and dividend payments
- Form 1099-K — third-party payment network transactions
- Form 5498 — IRA contribution reporting
- Form 8027 — tip income reporting for food and beverage employers
- Form 1095-B / 1095-C — health coverage reporting (applicable large employers)
One notable exception: employment tax returns like Form 940 and Form 941 do not count toward the 10-return threshold. Those stay on their own filing track. But nearly every information return your bookkeeper touches at year-end does count, and the IRS adds a few more form types to the aggregation checklist almost every filing season.
How to Count Correctly (Before You Get a Notice)
The mistake most small businesses make is counting form types separately, the way the old rule worked. Under the current rule, you have to add everything together first, then check it against 10.
Walk through a simple example: a small marketing agency issues 3 W-2s to employees, 6 1099-NECs to contract designers, and 2 1099-MISCs for office rent paid to an individual landlord. That's 3 + 6 + 2 = 11 total information returns. Because 11 is over the 10-return threshold, every one of those forms — the W-2s included — must be filed electronically. Paper filing any of them, even just the two 1099-MISCs, would put the business out of compliance.
This is the part that trips people up: it's an all-or-nothing rule once you cross the line. There's no "file the W-2s on paper and the 1099s electronically" option. Cross 10 in aggregate, and the entire batch has to go in electronically.
The practical fix is to run this count early, ideally in December, not the week returns are due. If you know how many 1099-eligible vendors and contractors you paid throughout the year, plus your employee headcount, you can tell in advance whether you're required to e-file — and get your bookkeeping and payroll software's e-file setup sorted out before the crunch.
What Happens If You Don't Comply
Skipping e-filing when you're required to do so isn't treated as a paperwork technicality — the IRS applies the same penalty structure used for filing incorrect or late information returns. For returns required to be filed in 2027 (covering the 2026 tax year), the maximum penalty is $340 per return.
The penalty is tiered based on how quickly you correct the problem:
- Correct within 30 days of the deadline: a reduced penalty per return
- Correct by August 1: a moderate penalty per return
- Corrected after August 1, or never corrected at all: the full $340-per-return penalty applies
For a business with 15 information returns, filing all of them on paper past the deadline — after being required to e-file — could mean a penalty in the thousands of dollars, for what used to be a routine mailing. Small businesses with gross receipts under $5 million have a lower annual cap on total penalties than larger filers, but the per-return math adds up fast even within that cap.
When Form 8508 Actually Waives the Requirement
There is a legitimate way out, but it's narrower than most business owners assume. Form 8508, Application for a Waiver from Electronic Filing of Information Returns, lets a filer request an exemption from the e-file mandate — but only if electronic filing would cause "undue economic hardship."
A few things to know before you count on this as an escape hatch:
- The hardship bar is real, not a formality. The IRS is specifically looking for filers who genuinely cannot comply electronically — not businesses that simply prefer paper or haven't gotten around to setting up e-file software.
- Timing matters. Form 8508 must be filed with the IRS at least 45 days before the due date of the returns you're requesting a waiver for. File it late, and there's no guarantee of a decision before your filing deadline arrives.
- It's a one-year pass, not a standing exemption. An approved waiver only covers the current tax year. If you still meet the hardship criteria next year, you have to apply again.
- Submission is by fax or mail, not through an online portal — a small but easy-to-miss detail that has tripped up filers expecting a digital process to match a digital filing mandate.
For most small businesses, the more realistic path isn't chasing a waiver — it's setting up e-file capability once, through payroll software, a bookkeeper, or the IRS's own Information Returns Intake System (IRIS), and never having to think about the threshold again.
Three Misconceptions That Get Small Businesses in Trouble
"I only file a handful of 1099s, so this doesn't apply to me." This is the most common misread of the rule. The threshold was designed to catch exactly this situation — businesses that never filed anywhere near 250 of any single form, but comfortably clear 10 once every form type is added together. If your business has any mix of employees and contractors, run the math before assuming you're exempt.
"The threshold resets for each client or location." It doesn't. The 10-return count is per filer (generally, per Employer Identification Number), not per client relationship, per department, or per physical location. A business with multiple locations filing under one EIN still adds everything together.
"E-filing is expensive or complicated, so I'll just pay the penalty if it happens." For most small businesses, that math doesn't work out. E-filing through the IRS's free Information Returns Intake System (IRIS) — or through payroll software that already supports it — costs nothing beyond setup time. Compare that to a $340-per-return penalty on a batch of a dozen forms, and the "just pay it" approach gets expensive fast, especially since the penalty applies per return, not per filing.
How to Actually E-File Without Hiring Anyone New
You don't need new software or a filing service to comply. The IRS's Information Returns Intake System (IRIS) is a free, web-based portal built specifically for this rule — it lets any business create an account, manually key in or upload information returns, and submit them electronically at no cost. It supports the most common small-business forms, including the 1099 series, and issues confirmation once your return is accepted.
If you already use payroll software to run W-2s, check whether it also handles 1099-NEC and 1099-MISC filing — most mainstream payroll platforms bundle e-filing for contractor payments alongside employee wages, which means you may already have everything you need without adding a new tool. The only real work is making sure every contractor and vendor payment that needs a 1099 is captured accurately in your books before the January filing window opens, so nothing gets left off the batch you submit.
A Simple Compliance Checklist for This Filing Season
- Tally every information return type you issue — W-2s, 1099-NECs, 1099-MISCs, and anything else on the list above — across the full calendar year, not per form type.
- Add them together. If the total is 10 or more, you must e-file all of them, no exceptions for individual form types.
- Confirm your e-file method now. Payroll providers and accounting software typically support e-filing, but confirm it before January rather than during filing week.
- If you have a genuine hardship case, file Form 8508 at least 45 days before your filing deadline — don't wait until the deadline is close.
- Keep clean, running records of every payment to contractors and vendors throughout the year, so counting your information returns in December is a five-minute lookup instead of a scramble.
Keep Your Records Ready Before the Threshold Sneaks Up on You
Knowing whether you're required to e-file starts with knowing exactly how many contractors, vendors, and employees you paid over the year — and that's a bookkeeping problem as much as a tax one. Beancount.io gives you plain-text accounting that's transparent and version-controlled, so every payment is tracked in a format you can query, audit, and count on the day you need to check your information-return total. Get started for free and keep your books — and your filing threshold — under control year-round.