Contingent Workforce Solutions

June, 2010 - Expanded 1099 Reporting Requirements Introduced in Health Care Reform Legislation

Beginning in 2012, payments of $600 or more in any taxable year for goods as well as services, and made to any person or entity, including corporations, will be subject to Form 1099 reporting. The new reporting requirements were introduced as part of the health care reform legislation enacted on March 23, 2010. Prior to the amendment, Section 6041 required information returns to be filed by every person engaged in a trade or business who makes payments to another person of rent, salaries, wages and other enumerated amounts that total $600 or more in a taxable year. The amendment significantly expands this reporting requirement to include payments "of amounts in consideration for property" and includes corporations not tax-exempt under Section 501(a) of the Code as "persons" subject to the reporting. The new provision is intended to bring in an estimated $19 billion in revenue over the next ten years. The reporting requirement is expected to affect businesses, and increase tax revenues in two ways: (1) most of the revenue of a business will now be reported to the IRS by third parties, making large understatements of revenue more difficult; and (2) a business will be less likely to overstate its expenses, as it will need to report who were the recipients of the payments.

Qualifying payments are generally reported on Form 1099-MISC, which must be filed with the Internal Revenue Service (IRS) and a copy sent to each entity receiving the qualifying payments. In order to complete the information required on the Form 1099, businesses will have to obtain vendors' Taxpayer Information Numbers (TIN) by using Form W-9, and track payments made to all of their vendors to determine which payments satisfy the threshold for reporting - including tracking payments made by check or credit cards. The 1099 forms for payments made in 2012 will have to be filed and reported by February 28, 2013, or March 31, 2013, if filing electronically, or on such dates as the IRS may require for such information reporting.

On a practical level, the new 1099 filing requirements will substantially increase the burden and expense of reporting for businesses. Businesses will have to keep track of all purchases they make by vendor, and each individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases. According to a Taxpayer Advocate Service (TAS) analysis of the 2009 IRS data, nearly 40 million businesses will be subject to the new reporting requirement. Some observers also note that this will seriously affect small businesses adversely, as recordkeeping requirements will be far too costly and time consuming. Even if debit and credit card payments are accepted, most businesses are not set up to distinguish payments to vendors separately by type of payment.

With businesses groups complaining that the new law will swamp their members in paperwork, there have been some attempts in Congress to repeal the law. The IRS has issued Notice 2010-51 inviting public comment on the best way to implement the new reporting requirements in a manner that minimizes the burden and avoids duplicate reporting.

It is too early to predict the final outcome of the new Form 1099 reporting requirements, but it will certainly call attention to SOW consultants, incorporated independent contractors and sub-vendors by the IRS. Fortunately, there is still some time left before companies have to make the changes necessary to develop an effective strategy to handle the new reporting. Synergy Services has the experience and expertise in this new legislation to help companies navigate through these changes and minimize the administrative burdens. The key for companies is to not be caught unaware with this change, and diligence will be essential to save money, remain efficient, and become compliant.

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