The Senate is scheduled to vote April 5 to repeal the 1099 reporting mandate that was enacted under last year’s health care reform law.
President Obama’s State of the Union Address invited the change. “If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you,” he said Jan. 25. “We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”
The “flaw” Obama mentioned was the 1099 provision of the health care law he signed into law in 2010. The provision was designed to improve compliance with the tax code, but, to small businesses, the main impact was going to be a lot more paperwork.
Before the bill was enacted, businesses needed to send 1099 forms to any non-incorporated businesses that provide them with more than $600 in services per year. After the health care reform bill became law, those businesses were required to send 1099s to any business that provides them more than $600 in goods or services per year.
Say that every Friday morning, you stopped at the same bakery and picked up donuts for your employees, and the total came to more than $600 a year. That would mean that you would have to get the tax identification number of the bakery and then fill out a 1099 to give them.
This reporting requirement met with anger and resistance on many fronts, from small businesses to health care providers who work in small practices to the media. Perhaps most surprisingly, the IRS itself did not support the provision. The Taxpayer Advocate Service, an independent office within the IRS, wrote a report to Congress saying that the provision would overburden businesses and that the IRS would not be able to handle the paperwork. Lawmakers also provided little support for the bill, with both Democrats and Republicans speaking out against it.
Now lawmakers seem poised to correct this paperwork nightmare. On Jan. 12, Rep. Dan Lungren (R-Calif.) introduced H.R. 4, or the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011,” which would do away with the 1099 provision included in the health care reform bill.
The House of Representatives passed H.R. 4 by a 314-112 vote on March 3. If the Senate passes the bill on April 5, it will go to President Obama for his signature into law.
The major controversy at this point is how to pay for the repeal. The 1099 requirement was expected to bring $20 billion into the federal budget over the next 10 years, and a repeal of the bill will cause that money to disappear. The battle on how to pay for the repeal has been going on since last summer, when Republicans and Democrats in both the House and the Senate targeted the other side’s priorities.
The House proposal involves an increase in what consumers will repay if they receive premium subsidy overpayments, a plan that has been decried by Democrats as creating a burden on the middle class. In a recent article in the New York Times, Rep. Joseph Crowley (D-N.Y.), said, “We all believe the 1099 reporting requirement needs to be repealed. We, too, want to help small business, but not on the backs of middle-class taxpayers.”
The Senate has formed a different plan to pay for repeal of the 1099 provision. According to this plan, the Office of Management and Budget would be allowed to recapture unused federal dollars from various governmental agencies. It appears that there may now be enough votes in the Senate to implement this plan.
Despite the fact that the “way to pay” is still unclear, repeal of the 1099 requirement has support across the spectrum, from the public to the business community, from the House and the Senate, and all the way to the president’s desk. Those Americans whose businesses would have felt the impact of the 1099 requirement are a little closer to being able to breathe a sigh of relief.