Journalists combing through the fine print of the new health care reform bill have found a provision that requires business owners to issue 1099 forms, not only to contract workers, but also to any individual or business from whom they purchase more than $600 worth of goods or services. The provision is buried in Section 9006(b)(1), taking up 170 words out of the new health care reform law. The new law is about 2,500 pages long and has a total of about 400,000 words -- most readers did not notice the 1099 provision the first time they read the bill.
It is easy to see why the IRS would want more 1099s, even though the change threatens to bury the agency under a mountain of paperwork. In some cases, the payments that businesses make for goods and services are never reported to the IRS as income. That income does not just go to businesses that work entirely off-the-books, but also to businesses that report much, but not all, of their income. But if the business that hires a vendor or buys a product reports that transaction to the IRS, the vendor is forced to report, and pay taxes, on the income.
According to analysts, businesses would have to keep meticulous track of their expenses, including the vendor's name, address, and tax identification number, so that they could send out 1099s at the end of the year. Those 1099s would have to go to the vendors from which a business buys its inventory, office supplies, computer equipment; to the vendors that it turns to for repairs or for regularly needed services such as legal counsel, accounting, bookkeeping, consulting; and even to landlords from whom a business leases space.
When businesses send out 1099 forms, they must send two copies, one to the individual or business which received the income, and one to the IRS. They must also keep a third copy in their own files. Self storage businesses would have to send out 1099s to their vendors, and collect 1099s from tenants who spend more than $600 in a year's time on storage space.
More taxes means more income for the government to use, so the 1099 provision has become a hot-button political issue. Not everyone agrees with the many ways in which the federal government spends its money. It is impossible to say whether the extra money garnered through more extensive 1099 reporting would be used to provide more money for disaster relief through agencies like FEMA, to pay soldiers in the military or to send them supplies such as bullet-proof vests, to provide student loans for college students, to pay air traffic controllers at airports, to put new satellites in orbit around the Earth, to bail out failing financial institutions, or to put in place new unnecessary layers of bureaucracy and red tape. It's likely, in fact, that any increase in income received by the federal government would be used for any and all of these things, as well as much more.
This provision of the newly-passed health care reform law has become the first of the new law's provisions to be challenged in Congress. On April 26, Republican Daniel Lungren, a California Congressman, introduced legislation repealing the 1099 provision. In a special report Lungren wrote for his home town newspaper, The Elk Grove Citizen, Lungren wrote an outraged critique of the 1099 provision, calling it a way to "conscript companies to snitch on one another."
Sources used:
"Costly changes to 1099 reporting in health care law." AccountingWeb.com. April 28, 2010.
Lungren, Dan. "Lungren on his fight for small businesses." The Elk Grove Citizen. May 4, 2010.
deMause, Neil. "Health care law's massive, hidden tax change." CNNMoney.com. May 5, 2010.
Ostrom, Carol. "No easy answers on health-care tax credits for small businesses." The Seattle Times. May 9, 2010.
Tanner, Michael. "Health care floods business in paper." The Atlanta Constitution. May 6, 2010.