Last Month's Elections May Give Rise to Repeal of the New 1099 Requirements.

Online, December 20, 2010 (Newswire.com) - The Patient Protection and Affordable Care Act, known as the Obama healthcare bill, included a requirement that should have businesses screaming beginning January 1, 2012. Although the new reporting requirement does not apply to payments made before 2012, compliance with the new 1099 reporting requirement may add significantly to a company's paperwork burden beginning in 2011. Businesses may need to ramp up internal controls in order to comply with the new requirement, before January 1, 2012.
For many companies the issuing of Form 1099 is not a new idea. However, most businesses historically have only sent Form 1099s to independent contractors paid $600 or more. If a business paid other companies more than $600, but the vendor had an employer identification number, the practice had been not to send the vendor a Form 1099. The new healthcare bill as currently enacted will require businesses to send a Form 1099 for the following:

1. Commissions, fees and other compensation paid to a single recipient when the total amount paid in a calendar year is $600 or more, and

2. Interest, rents, royalties, annuities and income items paid to a single recipient of $600 or more in a calendar year.

How does this effect companies, suppliers, and all related organizations?
Commissions, fees and other compensation will include about every vendor with whom a company does business. For example, if a company purchases new tires for its trucks, the company will have to send a Form 1099 to the tire retailer. Every supplier will need a Form 1099, as well as possibly the vendor that supplies office supplies and any other organizations paid over $600 annually. Additionally, the Form 1099 must be filed based on calendar year payments, so companies with fiscal years will have to track the payments paid to all vendors on a separate year than their company year-end.
What's required?
A completed Form 1099 must include a vendor's taxpayer's name, address, city, state, identification number and amount paid annually. Owners will need to carefully tract these expenditures. This is where the burden on a company could be great. Businesses will have to contact every vendor paid more than $600 in the calendar year 2012 and request a taxpayer's identification number.
What went on in the "lame duck" session of Congress?
Even though on November 3, 2010, President Barack Obama suggested working with Republicans on the Form 1099 provision of the new healthcare law, the lame duck Congress failed to pass any legislation addressing the 1099 provision. President Obama has said that:
"The 1099 provision in the healthcare bill appears to be too burdensome for small businesses. It just involves too much paperwork, too much filing. It is probably counterproductive. If it ends up being so much - so much trouble that small businesses find it difficult to manage, that's something that we should take a look at."
The National Federation of Independent Business spokeswoman Stephanie Cathcart echoed the Presdient in saying that "it is clearly a provision that not only has nothing to do with healthcare, but is particularly harmful to the very people we are hoping will lead us out of these economic times - small businesses. It is time for Congress to get serious and focus on the full repeal of this onerous and harmful provision."
Who knows what the future will hold for this provision of the healthcare bill. Know that if this provision stays intact that failure to comply with the new requirements will bring penalties between $60 - $250 per non-filed Form 1099. The maximum penalty per company could range between $250,000 - $1,500,000, depending on company size and amount of days the Form 1099s are delinquent. Therefore, compliance with the requirement is a must.
About the author:
Cheddy Wigginton is a Senior Tax Manager and CPA with over 12 years of extensive accounting and taxation experience with FROST, PLLC. Founded in 1974, Frost, PLLC is a leading independent accounting firm in the U.S. and has continued to gain an unparalleled reputation in the areas of accounting and consulting. The breadth of the firm's expertise includes assurance services, tax and international tax services, information technology services, including SAS 70, cost segregation services, small business services, financial services, and health care and medical practices. Today, with clients across the U.S. and even beyond, Frost's goal is to become a strategic partner in its clients' business, while providing value-added insight and advice on the many complex financial issues that abound in today's marketplace. For more information, visit www.frostpllc.com.
For more information, please contact:
Cheddy Wigginton, Senior Tax Manager, FROST,PLLC, [email protected], (501) 975-0161

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