When The Obama Health Care law passed this year few people actually knew what was fully contained within the bill's thousands of pages. Only now after the law has been passed are we finding out the details about some of the provisions within the law that could affect us. A lot of people aren't happy about what they're finding.
One of the provisions that has been almost universally spurned by Republicans and Democrats alike is a new requirement that could affect nearly 38 million businesses, including many entrepreneurs and freelancers like myself. The requirement? They must all file tax forms for every vendor that sells them more than $600 in goods.
1099 Filing Requirement Could Bog Down Business Owners In Paperwork
Now that the tax provision has come to light and has become extremely unpopular, both parties have said they would like to repeal the provision (it's an election year!). They are, however, disagreeing about how to pay for the $19 billion in tax revenue it was estimated to bring in – after all, they need that money to pay for the new health care law.
Republicans have proposed cuts to areas of the health care bill, while Democrats want to raise taxes on corporations and high income earners. From WSJ.com
Tucked into the new health-care law is a requirement that could affect nearly 40 million businesses: They must file tax forms for every vendor that sells them more than $600 in goods.
The goal is to prevent vendors from underreporting their income to the Internal Revenue Service. The government estimates the filing requirement will bring in $19 billion over the next decade.
Business groups say it will swamp their members in paperwork, and Congress is listening. Democrats and Republicans want to repeal it, but getting them to work together on the issue is proving difficult in an election year.
The House rejected a bill Friday that would have repealed the provision. The two parties disagreed on how to make up the lost revenue.
“This foolish policy hammers our business community when we should be supporting their job growth,” Sen. Mike Johanns of Nebraska said in the Republicans' weekly radio and Internet address Saturday. “It's only one example of how the administration's promise to support small businesses really rings hollow.”
Democrats blamed Republicans for Friday's failure.
“Despite all of their rhetoric about the need to eliminate this reporting requirement, Republicans walked away from small businesses when it mattered most,” said Rep. Sander Levin (D-Mich.), chairman of the House Ways and Means Committee.
So once again, we enter the loop of blame – each party blaming the other for the failure to repeal it thus far. I guess it really comes down to a fundamental difference in strategy and priorities. One party wants to cut, while the other wants to increase taxes. Question is – will they be able to get something figured out?
Paperwork Nightmare For Small Business
If it doesn't get repealed it will become law, and many have said it will be a paperwork nightmare for small business.
Businesses already must file Form 1099s with the IRS when they purchase more than $600 in services from a vendor in a year. The new provision would extend the requirement to the purchase of goods, starting in 2012.
The requirement would hit about 38 million businesses, charities and tax-exempt organizations, many of them small businesses already complaining of too much government paperwork, according to a recent report by the National Taxpayer Advocate. It would also create enough extra paperwork that it could strain the IRS itself, wrote the advocate, an independent watchdog within the IRS.
Businesses that repeatedly make small purchases from the same vendor would have to keep good records in case the total exceeded $600 in a year. Companies would also have to get vendors' tax identification numbers to include in the filings.
“Tax paperwork and compliance are already major expenses for small businesses,” a coalition of 80 business groups recently wrote lawmakers. “This new and expanded requirement means that almost every business-to-business transaction is potentially reportable to the IRS.”
As if the IRS and tax paperwork wasn't already extremely bloated, this promises to only add to the reporting and paperwork.
I for one hope that they get the law repealed as I can't see it being a good thing. In fact I can see how it would only be a millstone around the neck of small business at a time when that is exactly what we don't need.
What are your thoughts on the new reporting requirements? Do you own a small business or are you a freelancer – and would it affect you? Tell us your thoughts in the comments.