Update on Health Care and 1099 Forms
Wednesday, September 15, 2010
As most small business owners probably know, the new health care
reform law contains a provision that requires every small business
to issue a "1099-MISC" IRS form to every vendor with which it had
more than $600 in transactions in a year. Employers will have
to track down the taxpayer ID number of each vendor and may be
responsible for withholding payments from the vendor if requested
by IRS. There is bipartisan opposition because compliance
will be costly, time consuming and could impact 40 million
firms.
The Senate yesterday had two opportunities to fix this
problem. One Democratic amendment would have exempted firms
with 25 workers and raised the reporting threshold to $5,000 from
$600. A Republican amendment, meanwhile, would have fully
repealed the 1099 reporting changes. Neither effort was
successful.
I support a House measure to fully repeal this cumbersome
provision that has nothing to do with health care, will not produce
much tax revenue, and will be a compliance nightmare. Under
this plan, if your small business spends $600 on paper at Staples
and $600 on paper towels at Costco over a year you'll have to fill
out tax forms. Imagine having to fill out forms and seek out
taxpayer ID numbers dozens or hundreds of times a year,
particularly if your firm is so small you don't have a full time
accounting staff.
Even the IRS has raised red flags on the 1099 issue. The
IRS National Taxpayer Advocate predicted in July: "In our
view, it is highly likely that the IRS will improperly assess
penalties that it must abate later, after great expenditure of
taxpayer and IRS time and effort."
I'm disappointed the Senate couldn't make this problem go away
yesterday because small businesses deserve more certainty in this
economic environment, not a slew of new tax reporting requirements
that will jeopardize jobs.
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