Managing Your Money

Repeal of expanded 1099 rules in the works

It appears that the 1099 train wreck may not get to leave the station. On March 3, 2011, The House of Representatives passed the Small Business Paperwork Mandate Elimination Act of 2011. This legislation would repeal the expanded 1099 reporting requirements mandated in last years healthcare legislation and also repeals the new 1099 reporting requirements on landlords of small rental properties.

The Patient Protection and Affordable Care Act (a.k.a. Obamacare) greatly increased the 1099 reporting requirements on businesses and other entities. Under the Obamacare rules, all businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they purchase goods totaling $600 or more during a calendar year. Thus, starting in 2012, a business would need to disclose to the federal government almost all payments made during the year on Forms 1099. Think Big Brother on steroids. A separate bill passed last year further increased 1099 reporting requirements. The Small Business Jobs Act requires that individuals who receive rental income (i.e. small landlords) are subject to 1099 reporting requirements. Both of these provisions would be repealed by the bill.

As an example. My job requires me to travel quite a bit and in those travels I frequent Panera Bread. I may go 25 times per year with an average bill of $6.00. This only gets me to $150. However, other employees in the office may also frequent Panera in their travels. We now need a tracking mechanism for the 100 or more trips to Panera in a year by all the employees, collect the necessary information and potentially send Panera a 1099 at year end. What would be the cost of tracking all these payments to this single vendor? What would be the significance? Certainly the US Government is not concerned that Panera is evading taxes by underreporting cash receipts and even if it were, this mechanism would do nothing to catch it. So a large cost and burden is inflicted on businesses, and the results are useless.

The business community, including the US Chamber of Commerce, is almost universally opposed to the paperwork nightmare that will ensue, whereas, the Massachusetts Congressional delegation is almost universally in favor of the expanded 1099 rules. Of the 112 House votes against the repeal, nine of those nays came from Massachusetts. Mr. Lynch, Mr. Markey, Ms. Tsongas, Mr. Neal, Mr. Olver, Mr. Frank, Mr. Capuano, Mr. McGovern and Mr. Tierney all voted against the repeal. I suspect Mr. Tierney’s paperwork for his business ventures will be impeccable.

The bill now goes to the Senate which has already passed its own version of 1099 repeal. There are differences between the House and Senate version, primarily in how to pay for the bill. These differences will have to be worked out before a bill can be sent to the President. The President has indicated he is solidly on the fence. He supports the 1099 repeal, but not how to pay for it. Definitely maybe.

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