When it comes to 1099 reporting rules, it’s out with the new and in with the old.
On April 5th, near the close of the 2010 tax filing season, Congress passed a law to ease the tax compliance burden of many small business owners for tax year 2011. The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, HR 4, is a simple bill that removes the enhanced 1099 reporting requirements for payments to corporations and for payments made by owners of rental properties. President Obama has now signed the bill, making the repeal of what many called cumbersome reporting requirements official.
While employers normally supply a W-2 form to employees to report income they received for tax purposes, the 1099 is the IRS form that has traditionally been used by businesses to report income paid to independent contractors or “freelancers.” Under current law, 1099s are generally required for payments totaling at least $600 in a single calendar year to a single recipient by a business. The type of payment that most commonly triggers the reporting requirement was payment for services.
The healthcare reform provisions and Small Business Jobs Act passed in 2010 made changes to the 1099 reporting requirements that were to go into effect in 2011, which the 1099 Taxpayer Protection Act is repealing. If the repeal had not passed, payments to corporations would have no longer been exempt from the 1099 reporting requirements. This would have meant that businesses would have to keep track of tax information for a new category of payment recipients and would have increased compliance and administrative costs.
The types of payments for which a 1099 was required would also have been expanded to payments for goods or other property. People who received rental income would also have been treated as being engaged in a business and thus required to issues 1099s for payments of $600 or more to a service provider (for example, a painter or plumber) in the course of earning rental income.
The National Federation of Independent Business led the repeal effort on behalf of its 350,000 member businesses. Other business groups that have opposed the new IRS rule include the San Diego North Chamber of Commerce, the National Small Business Association, the International Franchise Association and the National Federation of Independent Business
The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 removes these “enhanced” 1099 reporting requirements for payments to corporations and for payments made by owners of rental properties.