There has been much discussion concerning the new 1099 requirements for business in the health care legislation. While it is true that there are expanded requirements AND penalties, most of the onerous requirements don’t go into place until 2012.

Currently, a business is required to prepare an information form 1099 for anybody to which they pay more than $600 in a year (payments to corporations and partnerships is currently exempt from reporting requirements). Theoretically, this allows the IRS to find people that aren’t filing their taxes or are not reporting all of their income. The problem is that there is significant non-compliance on the part of business, and there are so many incorrect forms filed, that it is difficult to assess their effectiveness. There is no doubt that it spurs compliance. An unidentified IRS source stated that up to 75% of taxpayers that receive notices from the IRS generated by this 1099 matching, pay the balance. It sounds like a good portion of taxpayers just writes the check to avoid the trouble or harassment.

The new law raises the penalty for non-filing to $250 per 1099, which is a huge increase from the previously assessed $50. Additionally, the IRS wants you to track ALL of the payments you make, not just to individuals. In other words, the exemptions for reporting payments to corporations and partnerships is gone. Payments to Cox? Send them a 1099. How about payments to the City of Tulsa for your water bill? Yep, 1099 for that one too. You have the idea, major pain in the rear.

There have been several companies we’ve seen out marketing to business offering educational seminars and services related to the new reporting requirements. The good news is that there are already rumblings in Congress that may repeal this measure. If the law remains unchanged, the tracking problem will be the easy part. Obtaining the necessary information on form W-9 from all of your vendors will be the difficult part. Stay tuned, and we will keep you advised.

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