Heads-Up for Business – Big Tax Change Coming
BizFed member,
As we all sort out the effects of the national healthcare reform law that was recently passed, I thought you might find this a very useful heads-up – both for you and your members: There is a little discussed mandate in the law that threatens to swamp businesses with new tax paperwork.
Under the mandate in the healthcare bill, businesses 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.
Yes, you read that correctly!
All payments over $600 in services or merchandise, by all businesses, will have to be reported to the IRS and to the vendors on a Form 1099. The new requirements kick in Jan. 1, 2012.
The concept here has not been clearly or broadly publicly stated, but it appears to be that using 1099 forms to capture unreported income will generate more government revenue and, in turn, help offset the cost of the healthcare bill.
But that also means if your business buys a new iMac from the Apple Store, you'll have to send Apple a 1099. That means if your business member is a laundromat that buys soap each week from a local distributor, they will have to send the supplier a 1099 at the end of the year tallying up their purchases.
Yes, that's an amazingly labor-intensive provision that is certain to create an avalanche of more paperwork for all of us. And no, it hasn't really gotten much attention – partly because it's just a few lines buried in the 2,409-page healthcare bill.
There is already a legislative challenge to this mandate – filed last month by Rep. Dan Lungren (R-Calif.) – and it's not clear exactly how this legislation will work until the IRS issues its regulations on the new law sometime next year.
Check out more details in one of the most comprehensive media reports on the issue so far:
CNN Money: Health care law's massive, hidden tax changehttp://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/index.htm
Highlights of some reactions so far:
· "This is extraordinarily destructive. Extraordinarily stupid. …You do this if you assume every business cheats. It's just one of the dumber things I've seen in my years in Congress." – Rep. Dan Lungren.
- "There is no doubt this will be an administrative nightmare for many businesses in the first year or two. Have a large business-related meal at a restaurant, this will need to be reported on a 1099. Spend a week in a hotel in Waco, Texas; you will need to send a 1099." - Jamie Downey, partner at Downey & Co.
We all need to be aware of what may face us and our business members. Please alert your members to this issue and stay tuned for more information as this issue moves forward.
Tracy
Tracy Rafter, CEO
BizFed, Los Angeles County Business Federation
818.429.0862 ~ tracy.rafter@bizfed.org
Grassroots alliance of 70 top LA County business groups
Mobilizing over 100,000 business owners
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