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1099 Reporting: Now What?

March 5, 2011

Part of our year-end rush and first of the year madness (those are tax techy terms we us at GAI (www.gunwel.com)) is preparing 1099s. More often than not we need to verify addresses, social security numbers and make sure the correct amount of money is being reported. This past year there have been an overhaul on the 1099 reporting system that was going to increase the madness. Although everyone seems to agree the ‘enhanced’ Form 1099 reporting requirements due to become effective in 2012 are an awful idea, no one seems to agree on how best to repeal the requirements because to do so will leave almost a $25 billion hole in the federal budget. This hole can be addressed with either spending reductions or tax increases or a combination of the two.

As we know, this legislation would repeal the initial expansion of the 1099 reporting rules—requiring businesses to issue a Form 1099 for payments to corporations for goods and services that exceed $600 per year to each vendor—from the 2010 health care law (Pub. L. No. 111-148) and the further expansion of them in the 2010 small business law (Pub. L. No. 111-240) to include landlords. Although the cumulative estimated revenue increase from the expanded rules was some $19.5 billion only last year, the estimated revenue decrease from repealing the expanded rules is now about $25 billion.

The House yesterday voted to repeal all of the new reporting requirements. The revenue plug? Under the House offset, beginning Jan. 1, 2014, if certain individuals or families received tax credits to help them purchase health insurance but then ended up earning too much income that year to qualify for the tax credits, they would have to repay the money. The majority of the debate on the House floor was whether this is a tax increase or not. The non-partisan Joint Committee on Taxation says it is a tax increase (these are also the folks who gave us the $19.5 billion estimate in 2010 and the $25 billion estimate now) because taxes on those affected would increase compared with current law. Not surprisingly, the Republican-controlled Congressional Budget Office says it is not a tax increase. Let’s vote: tax increase or not?

Meanwhile, the Administration said March 1 it “has serious concerns” about the House bill and urged members of Congress to continue to try to find a way to reach consensus. In a Statement of Administration Policy, the White House said it strongly supports the overall goal of repealing the Form 1099 requirement, but the House Republican-backed bill will “result in tax increases on certain middle-class families that incur unexpected tax liabilities, in many cases totaling thousands of dollars, notwithstanding that they followed the rules.”

What now?

There are at least four options available to the Senate:

  •             Pass the House bill as is, which is unlikely;
  •              Call up the House-passed bill, strike the language, insert the Senate-passed language from the aviation reauthorization bill and send it back to the House;
  •              Call up the House bill, strike the language, and insert the text of a bill (S. 72) introduced in January by Reid and Finance Committee Chairman Max Baucus (D-Mont.) that would eliminate the Form 1099 rules for businesses only (not landlords) but without paying a revenue offset. This scenario, while possible, is also unlikely;
  •              Create a whole new plan with a new revenue offset. In fact, Sen. Baucus has already stated that he is looking for a new offset. It is unclear whether this will be a “tax increase” or a “spending reduction” or what definitions will be used to define those terms.

We will see what happens and whether the Senate goes along with the House and ultimately votes to repeal the reporting requirements recently expanded to landlords. Gunwel Tax & Bookkeeping is there to help you with all of you tax and bookkeeping needs. Our job is to inform, educate and hopefully make you feel comfortable with ongoing tax changes that can affect your life. Call us today at 212-979-6830 or stop by for a visit. See you soon!

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