How will new 1099 reporting impact my business?

Christopher Axene | August 10th, 2010

Businesses could see significant changes in how they report transactions on 1099 forms, thanks to a provision in the Patient Protection and Affordable Care Act.

The new law significantly changes how 1099s are used.  Businesses will now be required to file 1099-MISC forms not only for freelance work and independent contractors, but also for all business payments and purchases over $600 in a calendar year.  This means 1099s will be issued to corporations as well as individuals for payments made after December 31, 2011.

The additional reporting requirements will result in a substantial increase in the administrative burden for small businesses.  To meet these requirements, businesses will face the task of gathering names and taxpayer identification numbers for every payee and vendor that they do business with, creating concern over increased risk of privacy and identity theft that might result from the additional identification numbers that will be transmitted through the new process.

The American Institute of Certified Public Accountants (AICPA) feels strongly that the new law will create extremely burdensome reporting requirements for business taxpayers, and has sent a notice to members of Congress asking that Section 9006 of the healthcare Act be repealed. AICPA further notes that the information collected by the 1099 forms will not be very helpful to the IRS in collecting unpaid taxes that should have been paid by vendors, because it will be difficult to reconcile payments reported on the forms against income reported by the vendor.

Congress developed the provision to raise an additional $345 billion to help offset the cost of the healthcare bill. The new regulations are expected to better document businesses expenses that are typically written off, and also expose payments to small businesses that previously may have been unreported. An attempt to repeal the new 1099 requirement was recently defeated in the House of Representatives.

If the new regulations remain in place, the IRS must hold public hearings and develop regulations to administer the new law. No hearing dates have been scheduled yet. The IRS is expected to issue the new regulations sometime next year. 

Interested parties are invited by the IRS to submit comments in Notice 2010-51 via the following email address: Notice.Comments@irscounsel.treas.gov.  When commenting, include “Notice 2010-51” in the subject line.  Comments must be submitted by September 29, 2010.

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