Who knew putting four little numbers into the health care law would unleash such a fury from small business owners? Certainly not supporters of it. But, when those supporting legislators were looking for more money to pay for their law, a little tax reporting form with the number 1099 popped up. This not-so-little thing turned into Section 9006 (“Expansion of Information Reporting Requirements”) in the 2,000-page health care law. And, starting in 2012, this new tax reporting requirement will drown small business in an ocean of IRS Form 1099s. So, those four little numbers are a very big deal to Montana’s job creators.
For the non-business owners out there — here is how 1099 paperwork is filed currently. Form 1099s are like a W-2 for contractors — people who do work for a business but aren’t employees — designed to inform the IRS that a business has paid someone to do some work. Today, two limitations keep the flow of 1099s to a manageable level. First, businesses have to send 1099s only to unincorporated contractors, not to corporations. Second, 1099s only reflect the purchase of services, not goods.
The flood begins in 2012
In 2012, Section 9006 erases both of these limitations, and the flood begins.
Beginning in 2012, every business-to-business relationship exceeding $600 cumulatively in a given year must generate a pair of 1099s — one for the vendor and the other for the IRS. In Montana, another copy goes to the state (as well as one for the business’ records). Suppose a business has 20 truck drivers, each of whom purchases gas and turns in receipts for reimbursement. The business owner will have to take hundreds (or thousands) of receipts from all the drivers and collate them by gas station, and then they’ll have to gather a taxpayer ID number or Social Security number from each gas station where receipts exceed $600.
I’m sure you’re asking yourself what this tax reporting has to do with health care? And the answer would be: absolutely nothing. It was simply designed to raise federal revenues, yet there’s little evidence that it will (and certainly not by projected amounts). Instead, it will bury small businesses in a barrage of expensive paperwork and IRS audits, taking them (and their employees) away from their daily business activities.
But there is a way we can save small business from yet another burden being added to their plate. When our senators go back to Washington after recess and take up the Small Business Jobs Act, they will have the opportunity to vote on two amendments addressing the 1099 provision.
They will have the opportunity to vote on an amendment to fully repeal the 1099 provision. They will also have the opportunity to vote on an amendment, introduced by Senator Bill Nelson, D-Fla, that is designed to simply act as political cover for senators not willing to truly solve this problem for small business.
Only one solution will actually fix the 1099 problem — and that’s full repeal. The Nelson amendment simply won’t solve the problem. It would the IRS to create confusing new regulations, and further complicates the rules of what does and doesn’t need to be tracked and filed. It wouldn't lessen the paperwork nightmare, would still amount to huge accounting expenditures for business owners and would result in more IRS audits. In essence, it would make what was already a compliance nightmare worse for small businesses.
Full repeal of this harmful provision is the only answer to this problem, and there is bipartisan support for that. Small businesses aren’t tax cheaters and don’t need new reporting requirements that just create extra paperwork, discourage buying local and giving government yet a larger role in their day-to-day life.
So the question is: Will Congress do the right thing and stand up to support small business? If they are going to vote for a bill on the claim that it will help small business, then they should ensure that the 1099 provision is fully repealed as part of that. Agreement to repeal is the easy part — now our elected officials need to act on that and vote for the only acceptable solution — full repeal.
Riley Johnson of Helena is the Montana state director of the National Federation of Independent Business.