Processing, paperwork projected to soar over current levels
New tax regulations set to take effect in 2012 could spark an enormous jump in 1099 form processing for U.S. companies. CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com), examines the implications of the new requirement contained in the massive Patient Protection and Affordable Care Act, which was enacted in March 2010.
Under the law, starting in 2012, businesses will be required to issue 1099s to any vendor from whom they purchase more than $600 in goods or services, including such things as office equipment, food, bottled water, gasoline, lumber and plumbing supplies. An exemption for corporations that had been in place under the previous law will be repealed when the new law takes effect. In many cases, companies will also have to report payments for things like travel, telephone and Internet service.
The IRS estimates that the federal government fails to collect an estimated $290 billion a year in tax revenue on income that is not reported. The new 1099 reporting requirement is designed to close that tax gap between what individuals and businesses owe compared to what they actually pay. Additionally, Congress expects the 1099 measure to raise $17 billion in taxes and fees, offsetting part of the cost of health care reform.
“Increasing third-party reporting is proven to increase compliance, but the new law places a heavy accounting and reporting burden on businesses,” said John W. Roth, JD, Senior Federal Tax Analyst at CCH. “There’s been a lot of pushback from the business community, but intense lobbying to amend or repeal the 1099 reporting requirement has fallen short and it still remains set to go into effect.”
New Bills to Repeal 1099 Reporting Requirement
Numerous measures have been introduced on Capitol Hill to relieve businesses of the additional tax-filing paperwork the new regulation would create. On November 15th, Senate Finance Committee Chairman Max Baucus, D-Mont., introduced the Small Business Paperwork Relief Act (S.3946). The legislation seeks to repeal the expansion of information reporting requirements for payments of $600 or more to corporations, and for other purposes. For now, it’s been referred to the Finance Committee.
Two separate amendments calling for the repeal, which were attached to a different bill, were rejected in separate Senate votes on November 29th. Asimilar bill, the Small Business Paperwork Mandate Elimination Act (H.R.5141), was introduced in the House of Representatives last April.
The Finance Committee is also considering the Information Reporting Modernization Act of 2010 (S.3783), which was introduced by Senator Mary Landrieu, D-La., in September. That legislation takes a different approach – recommending the $600 threshold be changed to $5,000. It also calls for the dollar amount to accommodate future inflation and cost of living adjustment increases.
Credit Card, Debit Card Option
Roth points out that so far, the IRS has said only that payments made with credit or debit cards will dodge the 1099 bullet, because the reporting burden will fall on the credit card companies. But he cites that using credit cards in an attempt to avoid additional reporting burdens may not be the best solution.
“Many vendors or suppliers may not want to allow it because of the extra cost to them of 2 to 3 percent per transaction, and some purchases will exceed the dollar limit for company credit cards,” Roth said.
If the new 1099 reporting requirement is not repealed, Roth says businesses can take steps to limit its impact.
“Read the law as it is printed now, and tweak your accounting system so that you can track and report non-credit card payments by vendor. On the flip side, make sure you have processes in place to track the 1099s you receive,” Roth said.
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About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business ( CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading solutions are The ProSystem fx® Suite, CorpSystem®, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill.