New Bill to Repeal 1099 Reporting in Health Law

May 4, 2010

Rep. Dan Lungren (R-Calif.) introduced legislation to repeal a portion of the new health care law that will place an unnecessary and expensive paperwork burden on small businesses. The Small Business Paperwork Mandate Elimination Act (H.R. 5141) would repeal section 9006 of the Patient Protection and Affordable Care Act (PPACA) that requires any business that purchases more than $600 of goods or services from another business to submit a 1099 form to the Internal Revenue Service (IRS).

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 information reporting—on a Form 1099—for all business transactions with a vendor, whether incorporated or not, valued at more than $600 and the reporting requirement would be for both services and property. It would apply to payments to any single vendor that cumulatively exceed $600 in a given year. 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.

This provision was used as an unrelated “pay for” in the PPACA as it aims to help the IRS track and collect taxes on income that now goes unreported by enlisting businesses to help create a paper trail. The provision is expected to raise $17 billion over 10 years.

As enacted, every small-business owner will face increased paperwork and administrative burden 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.

Businesses are already overburdened with tax paperwork and reporting requirements, so the additional requirements included in the PPACA will only increase the cost and complexity of complying with the tax code. NSBA is pleased that Rep. Lungren has introduced this important legislation and will work with him to ensure passage.