Health care law's massive, hidden tax change
An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.
Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies 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.
The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.
Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.
But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.
Taken together, the two seemingly small changes will require millions of additional forms to be sent out.
Why did these tax code revisions get included in a health-care reform bill? Welcome to Washington. The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.
The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that's not the worst of it.
The bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.
The final impact of the law won't be known until the IRS issues its regulations on the new law, which aren't expected to arrive until sometime next year. The IRS has not yet commented on when it will release regulations or schedule public hearings, and an agency spokesman was unsure when it will do so. The new requirements kick in January 1, 2012.
