You have probably already heard about the “hidden tax change” in the Health Care Bill that requires ALL businesses issue 1099s to not only their contract workers (like your favorite VA, accountant, or business coach), but also to any corporation that they spend more than $600 with (like AT&T, Office Depot, and even your mechanic). This applies to all purchases of services AND goods.
Here are a few of the implications as I see it:
- Small business owners will be burdened with the task of issuing millions of these tax documents. (Good news for accountants and CPAs, bad news for the “do-it-yourselfers”.)
- Small business owners will be responsible for obtaining accurate business names and EIN/SSNs for all of their vendors and contractors. (Good news for us VAs who will be hired in droves to look all this stuff up; bad news for everybody else.)
- Many businesses may consolidate vendors to reduce the number of 1099s they need to issue. (Bad news for the economy and most small business owners.)
- Some businesses may choose not to spend more than $599 with any one vendor to avoid having to issue a 1099. (Bad news for everybody, especially VAs and other independent contractors who spend a lot of time cultivating long-term relationships with their clients.)
- Some larger business may choose to move overseas to avoid the extra hassle, resulting in more lost jobs. (Bad news for everybody….even the IRS!)
Why did these tax code revisions get included in a health-care reform bill? Welcome to Washington. The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.
A Democratic aide for the Senate Finance Committee, which authored the changes, defended the provision stating, “Information reporting improves tax compliance without raising taxes on small businesses,” the aide said. “Health care reform includes more than $35 billion in tax cuts for small businesses … indicating that during these tough economic times, Congress is delivering the tax breaks small businesses need to thrive.”
Corrective legislation was introduced at the end of April, check out this link to H.R. 5141: Small Business Paperwork Mandate Elimination Act. Its currently “in committee”…I don’t mean to be a downer, but as you know most bills and resolutions never make it out of committee.
I don’t yet know what the fines will be for non-compliance. I can tell you this tax change is scheduled to kick in January 2012, so you might want to get in the habit of keeping records of everyone you spend money with including: corporations, small businesses, and independent contractors. Please don’t hesitate to give me a call if you need help setting up a log.
