New 1099 Reporting Requirements Repealed
Glenn Tyndall, CPA
The U.S. Senate repealed the expanded 1099 reporting requirements that passed last year as part of the Affordable Care Act. The expanded requirements had all businesses issuing a Form 1099-MISC to all vendors who provided goods and services during the year which totaled more than $600 beginning in 2012. In contrast, the current requirement is that businesses issue 1099 forms to a select group, not all vendors. The provision would have captured an estimated $2.5 billion in unrecorded income, but many business owners consider the requirements burdensome.
In a letter to the U.S. Senate, the American Institute of Certified Public Accountants stated that the new 1099 requirements were a hurdle to growth and formation that businesses face. The AICPA also cited that the new requirements would be of little value to the government due to the great difficulties the IRS will face when trying to reconcile payments made for goods and services reported on Forms 1099-MISC to the income reported by the vendor on its tax return.
The AICPA noted that "We are concerned that the (1) recordkeeping to keep track of expenses by provider, (2) obtaining of tax identification numbers and other information from providers of property and services, and (3) providing the Forms 1099-MISC during January, a month when taxpayers would not normally be focused on tax issues, would be extremely burdensome."
Even though with the repeal of the expanded 1099 reporting requirements, businesses still have to file 1099-MISC forms under the old rules. A Form 1099-MISC payments of $600 dollars or more to contract employees, independent contractors or consultants, physicians, or other providers of health or medical services.
The U.S. Senate also repealed a separate 1099 reporting that worried real estate investors. Any business or person getting paid $600 or more for in a rental property transaction needed to get a 1099-MISC. The IRS also needed to receive a copy of the 1099-MISC. Before its repeal, the effective date of this provision was January 1, 2011.
The repeal of the expanded Form 1099 reporting requirements is offset by raising the amount of a healthcare tax credit that gets recaptured from taxpayers in cases of overpayment. Beginning in 2014, those who enroll in a health insurance plan will get the credit through an "exchange". The Joint Committee on Taxation estimated that this offset will raise $24.9 billion over 10 years, while repealing the expanded 1099 reporting requirements will save taxpayers $24.7 billion over 10 years. This repeal effectively saves taxpayers $49.6 billion over that period and businesses countless headaches under this burdensome 1099 provision.