Under recent tax law changes buried in health care reform, new federal laws require additional reporting requirements with the use of the 1099 MISC form provided by the Internal Revenue Service (IRS).
Prior to these changes, anyone who was paid more than $600 in a given tax year for miscellaneous services was required to also receive a 1099 MISC form from the payer. This allowed the IRS to track earned income made by people for various odd tasks that otherwise wouldn’t see reporting through normal payroll methods (i.e. W-2 forms).
However, due to the way the changes were made in recent federal health care reform enactments, the new 1099 requirements for payers will be far more onerous. Technically, the new changes require additional paperwork on businesses to now also report on anyone or organization who received over $600 of goods or services from the business in a given tax year. This change goes beyond payment for miscellaneous services and represents a far larger amount of tax paperwork and accounting than was previously required.
A good example happens to be a business that buys gold coins for resale. Previously, the business only had to report movements of such coins when they exceeded over $10,000 in one lump amount. Otherwise purchases were just recorded as business expenses. Now, with the new changes beginning implementation in 2012, the buyer has to post a 1099 notice both to the IRS and the seller for any coins that effectively exceed $600 each. For any gold coin over two-thirds of a troy ounce of gold at today’s spot price, the requirement is triggered.
Realizing the unintended consequences of the new change, various movements have been made to get Congress to make amendments to the current new 1099 laws. However, nothing has yet seen fruition regarding the matter.
The new laws are currently not yet in effect. A grace period has been provided before implementation kicks in as of January 2012. That said, there are no exceptions to the rule as far as companies are concerned. And the required recipients of the 1099 have to be both individuals and corporations. So the amount of paperwork a typical business could face would be immense in producing all the Form 1099s for every eligible payment made.
The original intent of the law was to catch revenue on already required taxes that otherwise don’t get reported or paid to the government. A significant amount of transactions occur that are eligible for taxation, but because they don’t go through traditional reporting means, the dollars don’t get paid by those receiving them. These “under the table” transactions end up costing an estimated $300 billion annually that the IRS could otherwise collect under other existing tax laws. If all things stay the same, the new 1099 requirement is expected to bring in at least $20 billion in new “previously lost” revenues over the next ten years.
Money CNN: Health Care Law’s Massive, Hidden Tax Change http://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/
Accounting Web: Get Ready for Onerous New 1099 Tax Rules http://www.accountingweb.com/blogs/scotth/exuberant-accountant/get-ready-onerous-new-1099-reporting-rules
IRS: IRS Requests Public Input on Expanded Reporting Requirements http://www.irs.gov/newsroom/article/0,,id=225029,00.html