1099 Reporting Remains in a State of Flux

When the Healthcare Act was signed into law earlier this year, the focus of everyone (and rightly so) was on how the Act was going to impact their choices for providing or receiving healthcare coverage in the future.  One item included in this Act that flew under the radar for many small business owners was the onerous and extremely unpopular provision to require 1099 reporting for virtually all payments of $600 or more, made to vendors for any reason.

The $600 threshold amount has been in the law for many years, but it only applied to payments made to non-corporate providers, primarily for services.  Fo example, if a business had paid $600 or more within a year to Joe's Cleaning Service, in most cases, it would have been required to issue a 1099 to Joe reporting that payment.  This would be true for any service provided by Joe unless Joe was incorporated.

The new law provides that any payments of $600 or more made by a business after December 31, 2011 for any reason - services, supplies and even inventory - would require 1099 reporting.  The entity form of the payee will also be irrelevant as of that date.  Thus, if you were to purchase $800 of business lunches from the corner deli within a year, you'd need to issue a 1099 to the deli.  If you did the same from McDonald's corporation, you'd now have the same reporting requirement.  Furthermore, if McDonald's sold you widgets (instead of food) that would be incorporated into a product you either produce or sell, a 1099 would need to be issued to it (a corporation) for the product purchased (inventory).

I bring this issue to bear at this time because the Senate has been discussing a small business tax act that they could vote on as early as this week.  This act contains numerous tax provisions to benefit smaller businesses, and had at one time, included a provision to scale back or eliminate this expanded 1099 reporting requirement.  Sadly, this did not survive that Senate vote; while it is not dead, it is nowhere near repeal at this time. 

Why was this provision included in the Healthcare Act and its repeal now excluded from this more recent proposal?  That's easy - MONEY.  A related provision was included in the Healthcare Act that drastically increased the single occurrance and total penalty ceilings for non-issuance of proper 1099s.  That provision continues to survive, and in fact, was publicly noted by Treasury as a revenue raiser when it was written into law.  Somebody has to pay at least part of our multi-trillion dollar deficit.  It might as well be the scofflaws and n'er-do-wells that will most likely unknowingly ignore the law.

Contact me at BBD if you wish to learn more about this provision.