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President Obama Signs 1099 Repeal

via President Obama Signs 1099 Repeal | PropertyCasualty360

President Obama late Thursday signed into law legislation repealing the 1099 reporting provision enacted as part of the healthcare reform bill.

Several insurance industry trade groups issued statements lauding the president’s decision.

The bill is H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.”

The repealed provision would have required all business entities to file a 1099 form with the Internal Revenue Service for each vendor for whom they have cumulative transactions of $600 or more. It would have gone into effect in January 2012.

The legislation also repeals an additional Form 1099 reporting requirement imposed on owners of rental real estate.

The 1099 provision was expected to contribute $19 billion toward paying for healthcare reform. The repeal legislation makes up the shortfall by making consumers repay all of their insurance subsidies under the healthcare law once their income rises beyond 400 percent of the federal poverty line.

House Democrats called that a tax increase on the middle class.

In signing the bill, President Obama said he looks forward to continuing to work with Congress to improve the tax credit policy in the legislation and is “eager to work with anyone with ideas about how we can make healthcare better or more affordable.”

Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies (NAMIC), says, “With the repeal of this provision, small businesses can now worry a little less about Washington red tape and continue to focus on creating jobs and rebuilding our economy.

He adds that NAMIC hopes Congress and the president “will continue to look for ways to improve government regulation by removing needless burdens on American businesses.”

Robert Rusbuldt, president and CEO of the Independent Insurance Agents  Brokers of America (IIABA), says, “In a strong show of bipartisan cooperation, the president and Congress have done the right thing by standing up for small businesses and repealing the 1099 reporting mandate.

“Our thousands of small business members and their clients will breathe easier knowing this ill-advised provision will not take effect.”

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1099-Misc Forms Explained

1099-Misc is a type of information return required by the IRS for income reporting purposes to track payments made to independent contractors. These are usually people who provide services to your business such as accounting, general construction contractors, service technicians, attorneys, landlords, etc. who are NOT employees of your business.   These payments may also include mileage reimbursements and materials provided.

According the IRS:

What is nonemployee compensation? If the following four conditions are met, you must generally report a payment as nonemployee compensation.

  • You made the payment to someone who is not your employee;
  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
  • You made the payment to an individual, partnership, estate, or, in some cases, a corporation; and
  • You made payments to the payee of at least $600 during the year.

The biggest challenge is making sure you know how to properly classify independent contractors and employees.   This will help avoid penalties for not withholding income tax from these payments if they are deemed to have been employees.

In order to determine tax payer status, ID information, and 1099 eligibility, you must obtain a FORM W-9 from each of your subcontract vendors.  It is a good policy to adopt that you do not issue payments to new vendors until you have their W-9 form on file.  That way, you will not be scrambling at year-end to get information such as their tax ID and address in order to process their 1099 forms or to know if they are exempt as a corporation.  1099 Forms are due to each recipient by January 31st and to the IRS (form 1096) by February 28th.

New Changes to the 1099-Misc Rules :

Few people are aware of new changes to the 1099 Rules that were passed with the Healthcare Reform Bill. Under the old rule, non-employee compensation for services that totaled more than $600 per year required having a 1099 form issued. Also, under the old rule Corporations were exempt so you wouldn’t have to issue a 1099 to PCs-R-Us, INC.  if they fixed your computer, for example.

The new rule states that beginning in 2012 payments that total $600 or more (at once or cumulative) made to ANYONE for ANYTHING, including corporations for services AND GOODS must be issued a 1099-misc form. You read that right! If you are a business, and you purchase more than $600 worth of supplies at Staples or Walmart, you will be required to issue them a 1099 form at year end.  There are currently attempts at repealing this provision which have so far, (as of this writing) have been unsuccessful.

The IRS has also created a new 1099-K form requirement which is already in effect for 2011.

There are actually many various 1099 forms for different types of payments and you should always consult with a qualified accountant or tax professional for specific help in this area for your business.  Feel free to contact us for more information.