New rules for business owners

New Healthcare Law Expands Volume of 1099 Reporting for Businesses

As more research is being done on the recent, 2,000+ page health care reform bill, one hidden provision which hasn't been given much attention is the fact the new law will require businesses to dramatically increase the amount of their information reporting to the IRS relating to the amount they pay for goods and services on an annual basis.

Under current law, if a business pays $600 or more for services rendered by a single unincorporated payee during the year it is required to report the total amount of those payments to the IRS via form 1099-MISC. Payments for goods purchased, payments to corporations, exempt organizations and retirement plans have historically been exempt from this reporting requirement. Section 9006 of the recent healthcare reform bill (HR 3590) drastically changes this.

Starting in 2012, businesses will be required to report all payments greater than $600, regardless of the status of the payee or what the payments are for to the IRS on Form 1099-MISC.

This will have a dramatic impact on many businesses. The new requirement means additional paperwork, information gathering, administrative work and obviously additional costs for businesses. For example, if your business purchases a new copier for $1,000, you will need to obtain the TIN (Taxpayer Identification Number) and home business address from the vendor/store that you made the purchase from and generate a 1099-MISC at year end reporting the purchase to both the IRS and the vendor. Multiply that times the number of different vendors you do business with and you will see the incredible amount additional work and cost that could be involved.

The goal of this provision is to make revenue and expense reporting by businesses more transparent in order to help the IRS catch under-reporting of income. There are still many questions surrounding this change, including how the new rules will be enforced by the IRS. It is anticipated the IRS will issue regulations sometime next year in order to help taxpayers comply accordingly.