Businesses Beware: Health Care Reform Bill
Greatly Expands Form 1099 Reporting Requirements

Currently, the Internal Revenue Service (IRS) requires businesses to document compensation for an individual worker whose income is not considered wage or salary on a Form 1099. Generally, freelancers receive a Form 1099 each year from their clients, and businesses issue them to the independent contractors they hire. The Form 1099 is considered an informational return, as a business issues a copy of the return to both the individual who received the payment from the business as well as the IRS. The theory behind requiring such reporting is that it assists the individual taxpayer in accurately reporting his or her income to the IRS, and concurrently allows the IRS to verify individuals are properly reporting all income they receive.

Health Care Reform

This reporting obligation was drastically expanded by the Health Care Reform Bill (Patient Protection Affordable Care Act) in March 2010. Just a few lines buried in the 2,409 page document mandates that beginning in 2012, all companies must issue a Form 1099 not only to contract workers and independent contractors, but to any individual or corporation from which they buy more than $600 in goods or services in a tax year. For example, any time a business purchases office supplies, if the business pays the supplier more than $600 on an annual basis, the business would be required to issue a Form 1099 to the supplier.

The motivation behind this new law is that such an obligation is projected to raise nearly $20 billion over a 10 year period, as the accuracy of business income tax returns are expected to improve with the receipt of Form 1099s from customers. However, the expanded burden of this reporting obligation for businesses is posed to have a significant impact. This mandate will force more than 40 million entities, including governments, nonprofits and both small and large businesses, to comply with onerous data collection and information filing burdens with the IRS on virtually all noncredit card purchases totaling $600 or more with any vendor in a tax year.

Potential Changes

As explained above, this new obligation has the potential to put significant reporting burdens on businesses, both large and small, beginning in 2012. Since the passage of the Health Care Reform Bill in March 2010, this piece of the newly enacted health care legislation has been a topic of much debate, and there has been a growing push to repeal the measure. Senator Max Baucus (D-Mont.) and other members of Congress have attempted to repeal the new reporting requirement on several occasions. While such efforts have not yet been successful, both Republican and Democrat Congressional leaders have vowed to continue to work on ensuring that these expanded reporting obligations are rolled back before they go into effect in 2012.

If you have questions about this new reporting requirement, please contact Matt Ehinger or Tom Schnellenberger.

Dec. 15, 2010

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.