Monday, October 18, 2010

Healthcare Reform is Not Just About Healthcare

Part of H.R.3200 - America's Affordable Health Choices Act of 2009 is Starting January 1st 2012, all businesses, DBAs, sole proprietors, independent contractors, etc., will have to report ALL transactions (goods & services) through the use of an IRS 1099 form. All "accumulated" transactions of $600 or more per year, will require a 1099.

The IRS currently has a reporting requirement for businesses who hire independent contractors. If a business hires a contractor, and pays them more than $600 in a tax year for services, the business must file a Form 1099. One copy of the Form 1099 goes to the contractor to remind him/her that taxes must be paid on the amount of income received. Another copy goes to the IRS which utilizes the form to ensure that the contractor accurately complies with the tax code by paying the proper amount of taxes on income.

As of 2012, every business -- big and small -- will be required to issue a Form 1099 to any vendor of services or property to which the business has paid more than $600 in a tax year for those services or property, regardless of the method of payment. A copy of the Form 1099 must also be sent to the Internal Revenue Service. Think about the hundreds of millions of transactions performed card transactions, checks, money orders, cash, bank wires, E-pays, etc.

According to a survey conducted by the National Association for the Self-Employed (NASE), micro-businesses (fewer than ten employees) issue approximately two to three Form 1099's to independent contractors under the current reporting requirement. Under the new expanded regulation, these businesses have estimated that they will have to issue roughly twenty-seven Form 1099s, mostly to large corporations. This is a 1250% increase in the amount of paperwork that will be required of small business come 2012. In addition to issuing form 1099s, a business will have to get Taxpayer Identification Numbers (TINs) from all qualifying vendors. Should the business owner be unable to do so, they would be required to withhold a portion of that vendor payment and send it to the IRS. The IRS will have to use a significant portion of the 16,000 new employees authorized by H.R. 3200 just to audit the flow of new 1099’s.

Should a business not file or inaccurately file their form 1099s, significant penalties will apply.

Is there good news along this front? Yes, Small Business Paperwork Mandate Elimination Act of 2010, S.3571/ H.R. 5141, is designed to repeal or modify this regulation.

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