May 2010 - Health Care Reform and 1099 Follow Up

Another important update on the health care reform law that is threatening to swamp U.S. businesses with a flood of new administrative burdens and paperwork.

Section 9006 of the health care bill mandates that beginning in 2012 all companies will have to issue 1099 tax forms, not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

This change radically alters the nature of Forms 1099 and means businesses will have to issue millions of new tax documents each year. Currently, the IRS Form 1099 is generally used only to document income other than wages and salaries (i.e., independent contractors).

But under the new rules, if a business purchases products from vendors, etc., they are required to issue that vendor a Form 1099.

The bill makes two key changes to how Forms 1099 are used. Their scope is expanded and being used to track payments not only for services, but also for tangible goods. Additionally, it requires that Forms 1099 be issued not just to individuals, but also to corporations.

These two seemingly small changes will require millions of additional forms to be sent out.

The final impact of the law will not be known until the IRS issues its regulations on the new law, which are not expected to arrive until sometime next year. The new regulations take effect January 1, 2012.

Many business groups are currently calling this section of the law a costly, anti-business nightmare. Rep. Dan Lungren, R-Calif., introduced legislation last week that would repeal the new Form 1099 requirements.