Let’s say you have a small staffing company. And you pay out $700 here, $1,000 there, and so on for others to handle your IT needs, write a few press releases, make some changes to your website, clean your offices or even service your copy machines.
Now brace yourself. How would you like to fill out a freakin’ 1099 form for every one of those people?
A bit onerous wouldn’t you say?
That’s exactly what will happen unless Congress repeals the tax-reporting mandate that lawmakers snuck into the health care reform bill a year ago.
The Republicans promised to eliminate it in their Pledge to America. President Obama also vowed to do the same thing in his State of the Union address. Yet there it sits, ready to go into effect.
Here’s the catch. And yes, as you might guess, it has to do with dollars and cents. Congress can't back this 1099 piece out of the health care reform bill without first finding a couple of billion dollars laying around. That’s the amount of money they estimate the new law will generate.
And it has to be a zero-sum game because of the “revenue neutral” promises Obama made when it came to the health care bill.
Now, the legislative boilerplate. Starting in 2012, the new regulations require any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services in one tax year. That's a massive expansion in the role of the 1099 tax form, which is currently used only to document non-wage income for individual workers.
CNNMoney quotes the IRS' National Taxpayer Advocate as saying this change will affect 40 million taxpayers, creating a compliance burden that could be "disproportionate as compared with any resulting improvement in tax compliance."
One can surmise that there will be an incentive to go with bigger companies who provide a broader suite of services, thus resulting in businesses writing fewer checks and generating fewer 1099 forms. And also resulting in a bunch of smaller businesses going out of business.