As part of this year’s health care reform legislation, starting in 2012, businesses will be required to provide a 1099 to any business they have paid in excess of $600 for products or services.
This will mark the first time that 1099s have been issued to corporations or for merchandise purchases; historically, a company has only been required to provide a 1099 for non-employee services (like freelancers), rents, dividends, and other non-corporation entities when they are over $600.
This new requirement is an effort to recover the revenue the government loses due to unreported income, in order to help pay for the cost of healthcare. The IRS estimates that the federal government misses out on $300 billion in taxes on unreported income annually.
But the cost of the provision will be staggering for small businesses, according to an article on Accountingweb.com. “There is no doubt this will be an administrative nightmare for many businesses in the first year or two,” Jamie Downey, partner at Downey & Co. said in The Boston Globe. “Have a large business-related meal at a restaurant, this will need to be reported on a 1099. Spend a week in a hotel in Waco, Texas; you will need to send a 1099.”
Some tax experts are already recommending that companies collect tax data on all vendors at the time of purchase, rather than waiting until tax time, to streamline the data collection burden.
The law is already attracting attention: Rep. Dan Lungren (R-Ca) recently introduced legislation to repeal the new 1099 requirements.
What do you think? Administrative nightmare, or not a big deal?