1099 Reporting Requirement

The expanded 1099 reporting requirement is a massive new burden on small businesses

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On March 23, 2010, an unprecedented expansion of the 1099 reporting requirement was included in the passage of the Patient Protection and Affordable Care Act (PPACA. This new mandate will require businesses to use Form 1099 to report to the Internal Revenue Service (IRS) all payments to corporations in excess of $600 for goods and services.

Under past law, service recipients were only required to send 1099 forms to non-corporation service providers. For each non-corporation service provider, the service recipient was required to issue two 1099 forms, one to the IRS and one to the service provider.

However, section 9006 dramatically changes the 1099 reporting requirement, no longer exempting corporations or payments for merchandise. Specifically, beginning Jan. 1, 2012, the provision would require a 1099 form for all business transactions with a vendor, whether incorporated or not, valued at more than $600 annually for both services and property. With millions of small businesses filing two forms for each vendor, it is likely that the number of 1099s filed each year by small businesses could easily exceed 100 million.

As enacted, every small-business owner will face increased paperwork and outrageous administrative burdens for each additional 1099 form prepared. Increased costs are incurred for mailing additional forms and for hiring outside assistance to ensure that businesses are correctly complying with the law. Furthermore, if a business previously has not been required to utilize the Form 1099 filing system, greater difficulty with compliance is likely to ensue. While it may seek to capture non-compliant corporations, it clearly places the burden on the wrong taxpayer—the compliant small-business.

According to NSBA data, the new reporting provision will increase the number of companies for which small firms file 1099s from an average of 10 to 86. Furthermore, it will inevitably stifle business-to-business transactions, giving big-box retailers an inherent advantage as businesses look to streamline, and thus ease the burden of this new reporting requirement.

Since its inception, members of the House and Senate have tried unsuccessfully to repeal this provision, mainly due to failure to reach an agreement on offsets. Now with bipartisan support and administration backing, there has been movement in the early days of the 112th Congress.

On Feb. 2, the Senate approved an amendment to the Federal Aviation Administration reauthorization bill (S. 223) that would fully repeal the 1099 requirement. The measure, offered by Sen. Debbie Stabenow (D-Mich.), is offset by retracting $44 billion in previously approved by unobligated discretionary spending, barring the spending of those funds by the Defense and Veterans Affairs Departments and the Social Security Administration.

Several repeal measures have been introduced in the House (H.R. 4 and H.R. 584) and on March 3, the House passed H.R. 4 by a vote of 314-112 to repeal the Form 1099 information reporting requirement. The House’s proposal is offset by reclaiming overpayments of advance tax credits to help low-income families buy health insurance. With differing offsets, both Chambers will eventually need to reach a compromise.
NSBA supports full repeal of the additional 1099 reporting requirement. The information reporting requirement, which is set to go into effect in 2012, is a costly and time-consuming mandate placed on a small-business owner. Businesses are already overburdened with tax paperwork and reporting requirements and the additional requirements will only increase the cost and complexity of complying with the tax code.
 
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