Health care law's massive, hidden tax change

[Rich Z]

Have any of you heard about this little wrinkle they slipped into this health care law?

Health care law's massive, hidden tax change
By Neil deMause, contributing writerMay 5, 2010: 11:00 PM ET

NEW YORK (CNNMoney.com) -- An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.

Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- 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.

The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.

Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.

But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.

The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.

Taken together, the two seemingly small changes will require millions of additional forms to be sent out.

"It's a pretty heavy administrative burden," particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.

Eliminating the goods exemption could launch an avalanche of paperwork, he says: "If you cater a lunch for other businesses every Wednesday, say, that's a lot of information to keep track of throughout the year."

The paper trail
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 move.

"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."

The new rules could drastically alter the tax-reporting landscape by spotlighting payments that previously went unreported. Freelancers and other independent operators typically write off stacks of business expenses; having to issue tax paperwork documenting each of them could cut down on fraudulent deductions.

More significantly, the 1099 trail would expose payments to small operators that might now be going unreported. If you buy a computer for your business from a major chain retailer, the seller almost certainly documents the revenue. But if you buy it from Tim's Computer Shack down the street, Tim might not report and pay taxes on his income from the sale.

The IRS estimates that the federal government loses more than $300 billion each year in tax revenue on income that goes unreported. Using 1099s to document millions of transactions that now go untracked is one way to begin to close the gap.

While all but unnoticed at the time -- a Pennsylvania business group issued the first warning last October as the idea emerged in draft Senate legislation -- the 1099 rule changes began sparking attention in the blogosphere in the last week. The libertarian Cato Institute called it a "costly, anti-business nightmare"; Rep. Dan Lungren, R-Calif., introduced legislation last week that would repeal the new 1099 requirements.

The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that's not the worst of it, tax experts say.

Marianne Couch, a principal with the Cokala Tax Group in Michigan and former chair of a citizen advisory group to the IRS on small business and self-employed tax issues, thinks the bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.

But she also sees a silver lining in the new law.

Her firm already recommends collecting tax data on all vendors, since the IRS requires that you have it on hand at the time of the transaction, not just at tax-filing time. And eliminating the corporate and goods exemptions at least means that businesses will no longer have to pour over every transaction to determine if it needs a 1099. The new rule is simpler: If it crosses the $600 threshold, it's in.

"There are probably going to be some hiccups along the way, because systems will need to be redesigned," says Couch. "But overall I believe it will make compliance on the payor end a lot more streamlined and easier."

In any case, the final impact of the law won't be known until the IRS issues its regulations on the new law, which aren't expected to arrive until sometime next year. The IRS has not yet commented on when it will release regulations or schedule public hearings, and an agency spokesman was unsure when it will do so. The new requirements kick in January 1, 2012.

http://money.cnn.com/2010/05/05/smal...re_tax_change/

Think what that is going to mean to YOU if you are a small business. If you sell any one person $600 or more in animals or merchandise, they must do a 1099 and send you a copy. If you buy $600 or more from any one seller YOU must fill out a 1099 and send them a copy. So yeah you bought a lot of stuff on Ebay. Did any one seller get $600 or more? Heck, if you buy a single computer for $600 or more (or ANYTHING for that matter), you have to send a 1099 to the seller.

Lovely, eh?

[Bob K]

Originally Posted by Rich Z

Have any of you heard about this little wrinkle they slipped into this health care law?



http://money.cnn.com/2010/05/05/smal...re_tax_change/

Think what that is going to mean to YOU if you are a small business. If you sell any one person $600 or more in animals or merchandise, they must do a 1099 and send you a copy. If you buy $600 or more from any one seller YOU must fill out a 1099 and send them a copy. So yeah you bought a lot of stuff on Ebay. Did any one seller get $600 or more? Heck, if you buy a single computer for $600 or more (or ANYTHING for that matter), you have to send a 1099 to the seller.

Lovely, eh?

I am just so sick of this crap. A few simple laws could have fixed everything but Obuma felt the need to be the dragon slayer at our expense. You think they really have to insure young adults? Sure they do but now they just quit writing the policies. How come my Medicare Advantage plan just went up this year? My wife has high blood pressure that is normal with medication. Why can't she get reasonable coverage? Apparently they think we're all stupid.

[Rich Z]

One little aspect of this that I don't think many people realize is that you are going to have to give your SSN and/or Federal tax ID number to anyone who buys $600 or more of merchandise from you so they can include it on the 1099 they have to fill out. And as well, the 1099 YOU send to someone you buy merchandise from will include YOUR SSN too. So much for trying to protect yourself from identity theft.

Hell, if I walk into a store to buy some merchandise and the total is more that $600 and they DEMAND my SSN, I'll tell them to just shove it and walk away from the purchase.

I am SOOO glad I retired my business last year. What a headache this would have been.

[fletcher4u]

remember the line lets pass it so we can see whats in it !!!!

[Rich Z]

Originally Posted by fletcher4u

remember the line lets pass it so we can see whats in it !!!!

Who was that, Pelosi? Damned dingbat.....

[Bob K]

Originally Posted by Rich Z

Hell, if I walk into a store to buy some merchandise and the total is more that $600 and they DEMAND my SSN, I'll tell them to just shove it and walk away from the purchase.

I don't know anything about the 1099 Rich. I need to find out more about it but I will not be forced into giving anyone my SS number. One thing we can do is give them a bogus number. I know I don't carry my SS card.

[Bob K]

I just read this:

"Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire. But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations."

[Rich Z]

Originally Posted by Bob K

I don't know anything about the 1099 Rich. I need to find out more about it but I will not be forced into giving anyone my SS number. One thing we can do is give them a bogus number. I know I don't carry my SS card.

Did you know that if you apply for a passport and refuse to give your SSN you can be fined $500 by the IRS?

[Bob K]

Originally Posted by Rich Z

Did you know that if you apply for a passport and refuse to give your SSN you can be fined $500 by the IRS?

Nope, didn't know it Rich but if a government agency wants it I really don't have a problem. The cashier at Walmart when I buy that new TV is a different story.

I was reading that because of your earlier post and I didn't know what you were talking about. Like you said, it's hidden in the obuma health care but I still have trouble really getting a grasp on what they want.

Liberals and conservatives hide things all of the time in other bills and I think that should be disallowed. Pelosi said they would have to pass the bill so we would know what's in it. She finally spoke the truth about something.

[ironhorse]

This whole situation will open up a black market big time...Example, if I have something someone wants to buy, I sell it cash, no 1099, no nothing...cash talks Bullsh*t walks!...I bet this part gets thrown out totaly...