Health Care Law’s 1099 Reporting Requirement Repealed

President Obama has signed into law legislation that repeals onerous new reporting and paperwork requirements. This is good news for small businesses.

Under last year’s Patient Protection and Affordable Care Act, taxpayers would have been required in 2012 to submit IRS Form 1099 for payments made to every corporations in the course of a trade or business that totaled more than $600 in a year. The requirement would have applied to both goods and services.

Given the possible number of transactions that would have been subject to the new mandate, and the fact that there are more 30 million non-C Corporation businesses, it is easy to see that this law would have produced an avalanche of paperwork: easily 100 million or more new 1099 forms.

NAHB surveys revealed that the average home builder would have been required to submit 40 additional 1099s, with nearly 20% of those surveyed expecting to file an additional 100 1099s. The compliance cost of this requirement could easily have run into the thousands of dollars per business in terms of staff time or other expenses .

The new law also repeals a requirement that independent landlords (owners of rental property for which the rental activity is not their primary trade or business) submit 1099 returns for similar $600 payments in a year. This requirement was in place for 2011 but is now repealed.

NAHB had testified to Congress on these issues earlier this year.

Prior law requirements for 1099 reporting, including payments for services to noncorporate entities (such as independent contractors), remain in place.

President Obama issued the following statement in connection with the signing of the repeal:

“Small business owners are the engine of our economy and because Democrats and Republicans worked together, we can ensure they spend their time and resources creating jobs and growing their business, not filling out more paperwork.”



0 replies

  1. I am not an accounting expert, and this newsbit is fast and loose with the numbers but I fail to see how in this age of automation the cost of filing even a hundred 1099s could run into the thousands of dollars. I am wondering, could the “avalanche of paperwork: easily 100 million or more new 1099 forms” have resulted in more taxes being collected?

    • Sherrie –

      In working with builders, some have reported that $25 is the effective marginal cost of an additional 1099 form. $25 times 40 new forms equals $1,000, while 100 new forms would have cost of $2,500. This doesn’t count staff time tracking down TINs, additional paperwork, etc.

      To your final question, the 1099 requirement, now repealed, is an excellent example of inefficient tax policy. There’s little doubt that for every new tax dollar collected, it would have cost more than $1 in administrative cost incurred by the majority of businesses who do pay their taxes.

      The repeal is good news for small businesses, and that’s why the repeal had bipartisan support in Congress, as well as the support of the president Obama.

  2. This is good news. Accountants did not have clear answers to questions such as if you buy materials from Home Depot would the 1099 go to the local store or to the head quarters. And if it went to the head quarters, where do you find their EIN?

    • Almost everyone agreed a paperwork nightmare was coming. It would have been a good example where the law was setting taxpayers up to be noncompliant. Fortunately that is not now the case.

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