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The beauty of Combined Federal State Filing is that you don’t have to report the same information twice for your federal and state/local taxes. But last year, the IRS didn’t include its new form for reporting non-employee compensation in the program. The form is used by business like Uberand Doordash that hire independent contractors to do work. As a result, 36 states that participate in the combined tax reporting program scrambled to enact their own direct reporting requirement.
For tax year 2021, the form is included in the sharing program. But now that states have their own reporting systems in place, they’re reluctant to scrap them. “The IRS really fumbled [when] they failed to include it in that sharing program,” said Sovos tax expert Wendy Walker. “By having 36 states go out and build their own requirements last year, why would they want to shift back over to the IRS’ sharing program this year? If they did, it means they would have to wait longer to get that information, which doesn’t make sense.”to report their non-employee compensation directly, according to my analysis and information from Sovos.
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