Updated April 15, 2011: President Obama signed H.R. 4 into law today, repealing expanded 1099 reporting obligations prior to their proposed effective date of January 1, 2012.
One of the most unpopular features of PPACA removes 1099 reporting exceptions applicable to services or goods received from corporations.
Currently businesses only need to issue Form 1099-MISC in relation to payments for services totaling $600 or more in a given year. Further, payments made to corporations largely are excluded from this reporting requirement (exceptions exist for medical and health care payments and payments to an attorney). Section 9006(a) of the PPACA eliminates the exception for payments to a corporation, first effective for payments made January 1, 2012 and subsequent (reported in early 2013); it also expands reportable transactions to include sales of tangible goods and not just services. By capturing taxable transactions that otherwise were not properly being reported, this measure was intended to raise up to $19 billion over 10 years towards the cost of health care reform.
It is a truth universally acknowledged (hat tip to Jane Austen) that this measure, if implemented, will impose serious compliance burdens, particularly on small businesses. To start with, they will need to capture Tax Identification Numbers from all corporations with whom they do $600 or more in business, just in order to issue the 1099s. There is added complication from the fact that credit card purchases have a separate reporting process at the level of the card transaction vendors.
In response to general public outcry there were several unsuccessful attempt late last year to repeal this measure, one taking the form of repeal bill H.R. 144. Now H.R. 4 re-introduces the text of H.R. 144, which had been sponsored by Rep. Dan Lungren (R-Calif.) H.R. 4 has even more backers than did H.R. 144, showing that opposition to the measure is growing. Of the 245 co-sponsors of H.R. 4, twelve are Democrats, including Rep. Barney Frank (D-Mass), who heads the House Financial Services Committee.
H.R. 4 may be introduced in the House as early as Tuesday, January 25. In its support, three Democratic senators have written a letter to House Speaker John Boehner (R-Ohio) urging that the measure be repealed. The letter, which is copied below, focuses on the detriment the measure could have on job growth and other advancements needed from the small business sector, in this still fragile economy.
The response from the Speaker’s office has been lukewarm. This is consistent with Republican strategy at the moment, which is wholly to repeal PPACA, not to tinker with and tweak it. No question, expanded 1099 reporting duties won’t feature in Republican proposals to replace PPACA, but tactically they may want to “hold out” for full repeal of PPACA rather than engage in a process that improves PPACA in any way.
Luckily we have almost a year for this awkward legislative dance to progress, before the expanded reporting deadlines are a reality. A business that wants to hedge its bets in the meantime should attempt to collect Form W-9s from all corporate vendors. With any luck, they will be fodder for the shredder within a year’s time.
Here is the text of the letter to the Speaker of the House supporting H.R. 4:
January 20, 2011
Dear Speaker Boehner,
Now that you have moved past repeal of the Affordable Care Act, we encourage you to work on efforts to improve the law moving forward. In this spirit, we urge you to take up and pass H.R. 4, a bill which simply strikes the tax-reporting requirement in the health reform law. We have heard from small business men and women in our states who have voiced concern that this provision is burdensome and unnecessary, and could potentially undermine our nation’s economic recovery. Repealing this provision would be an important and practical way to improve the Affordable Care Act. We are confident that the Senate can quickly act on H.R. 4 once the House has passed it.
Section 9006 of the Affordable Care Act (P.L. 111-148) requires all business entities to file a 1099 form with the Internal Revenue Service for each vendor for whom they have cumulative transactions of $600 or more. Small businesses in our states have raised concerns that in order to comply with this new requirement, which takes effect next year, businesses will have to institute new record-keeping methods. The change is particularly onerous for small businesses, our nation’s engines of growth, who cannot afford to employ extra lawyers and accountants to comply with the new rules. The provision may also have the unintended consequence of distorting behavior in the marketplace, as large businesses will have an incentive to minimize their reporting requirements by consolidating purchases with large vendors, harming small, regional vendors.
This past November, voters sent both parties a clear message: focus on job creation. As President Obama has recently noted, our economy will recover more quickly and create more jobs if we can reduce regulations on business. Repealing this provision would be a great first step as we work together to grow the economy.
Senator Amy Klobuchar
Senator Ben Nelson
Senator Maria Cantwell