If you're like many businesspeople, you may not have noticed the inclusion of a provision related to IRS Form 1099 in the new health care reform law. The current law requires that companies submit a 1099 to report payments to individuals and partnerships totaling more than $600 in one year. However, the new provision significantly broadens the application of the 1099 rule to include corporations (previously exempt) and the sales of goods (previously, rents, services, and financial transactions were covered). Long story short, many companies will be required to generate many more 1099s each year.
This has many businesspeople howling, and politicians scrambling to do something about this new burden on American business. However, this also turns out to be a good-news bad-news thing.
Billions of dollars of income earned by individuals and partnerships each year goes unreported to the IRS, and therefore untaxed. When a company issues a 1099 to the IRS for a particular contractor, then the IRS can be sure that the income is reported and taxed. The good news is that the new provision will fill much of this gap -- providing an estimated $17 billion to the U.S. Treasury each year.
The bad news, however, is that the Obama administration calculus supporting the health care reform law in great part depended on this $17 billion shot in the arm.
What we're left with is a gigantic political football. Should the government do whatever it takes to try to recover this $17 billion, or should it give battered American businesses large and small a break by repealing the provision? The fight is on in Congress, but to date, the new 1099 requirements have survived unscathed. Keep a close eye on this one, because if the new 1099 rule remains intact, then it will have an impact on your business, significantly increasing the paperwork burden.