Summary of 1099 Reporting and Tax Legislation Changes
Collection and management of supplier data is more important now than ever. New 1099 tax legislation included in the funding provisions of the Patient Protection & Affordable Care Act (March 2010) requires companies to collect valid TINs on a much larger scale than pre-legislation levels. Today most companies are expected to perform 1099 reporting for less than 10% of their supplier population. When the new law takes effect, companies can expect reporting levels to rise above 90%. Companies will need to implement new policies and potentially even new systems to manage supplier information more accurately in pursuit of staying in compliance.
Access Lavante's 1099 Resources
For a complete listing of resources designed to help you navigate the 1099 changes, visit our new resource page, with links to webinars, white papers and up-to-date articles about the legislation.
Click the video below to see how you can automatically manage your 1099s along with the collection of your W9s.
Summary of the Tax Legislation Changes
Section 6041 of the Internal Revenue Code outlines 1099 reporting requirements. The Patient Protection and Affordable Care Act includes an Amendment to Section 6041 which now requires 1099 reporting for any payments aggregating $600 or more to a supplier per year.
The new amendment will now create reporting requirements for:
- All for-profit corporations (excluding tax-exempt corporations) for payments made for Property (goods, merchandise, supplies, raw materials, equipment, etc.) over $600. Companies will be required to submit accurate TIN information or face monetary penalties.
- The provision in the health care law is aimed to reduce the gap between income that individuals and businesses make and the federal taxes they pay, which the Government Accountability Office estimates is $345 billion
The Wall Street Journal says Congress hopes the new 1099 provision will collect $17 billion more in federal taxes and fees.
What has been changed?
Before: Most payments to corporations were exempt from Form 1099 reporting requirements. These exemptions included: Providers of Goods, Corporations, Tax Exempt Organizations, Internal Organizations, and Retirement Plans. 1099’s were only required for a small subset of the suppliers where payments were made. This was typically well less than 10% of suppliers.
After: Companies will be required to submit 1099’s on all for-profit companies who receive payments greater than $600. This will typically be 90+% of suppliers.
The big change: Corporations have been added to the entities that require 1099 reporting. This will account for the biggest increase.
What are some details surrounding the timing of the new change?
The new law becomes effective for all payments made after December 31, 2011. Companies should plan to start collecting and validating W-9’s and TIN’s for each supplier they will spend more than $600 with for the 2012 year. Companies will need to issue and submit 1099’s to suppliers and IRS early in 2013 for the year 2012.
Having closely monitored this impending law for years, Lavante has developed solutions which enable companies to automate the collection of W9’s as well as the required IRS TIN-match. These solutions will greatly reduce the huge workload that this new law imposes. We encourage people to learn more about our solution for collecting W9's and TIN matching.
How will this effect AP and other financial personnel at corporations?
The new legislation poses a significant burden to corporations that must ramp up their reporting efforts. Information reporting requirements bring with them the responsibility of obtaining appropriate taxpayer identification numbers (TINs) from suppliers that were not previously subject to Form 1099–MISC reporting. If the corporation fails to produce a TIN, or fails to properly perform their 1099 reporting, then backup withholding is required on payments to 1099-applicable suppliers. The new legislation also poses a considerable increase to the amount of reporting that takes place within a business’s accounts payable system and department.
Employers will need to implement the appropriate record keeping and data collection processes to meet the reporting requirements, including, where necessary, processes to effectively communicate the required information to third parties providing payroll administration or managing other reporting obligations.
The monetary risk is expected to increases significantly. Where companies were experiencing B-Notice fines at the following levels:
- $50 per each supplier that is not properly reported
- $250,000 maximum potential risk per company
The new legislature increases the levels to:
- $100 per each supplier that is not properly reported
- $1.5M maximum potential risk per company, although some sources have indicated that this number could be higher
Due to the sweeping increases that the new amendment imposes, it is widely believed that the many aspects of the new legislation will go through an appeals process. However, the federal government has put over 16,000 auditor jobs in place - an indication of their intention to carry the new law out.
1099 Reporting Changes Related Links
- Vendor File Management | Collect W9 | OFAC Screening | Insurance Certification Collection | Diversity Tracking | Supplier Onboarding | USPS Validation
Join CEO, Joe Flynn of Lavante as he interviews both Jeff Ulanoski, former Rite Aid Director of AP and Jeff Wiest, former AP Manager at Tyco Electronics on the state of Vendor Management. Find out the benefits of using technology to: Collect W9s Sc...
- IRS form W9 Instructions and Printable Download
Collection of IRS federal tax form W9 does not have to be so painful. Watch this short video to see how you and your organization can Request, Collect and Automatically validate the TIN numbers with the IRS using the new Lavante Supplier Information...
- Thoughts About the Escalating Complexities in Managing Supplier Relationships and Information
Managing supplier information is becoming an ever-more complex and involved process for organizations of every size and across all industries. Through our work at Lavante in automating recovery audit and supplier management processes, we are...
- Lavante and Basware Launch 2012 Future of AP Seminar Series in Houston, Texas
On Thursday, February 16, we were happy to co-host the first of a our Future of AP: Five Top Changes Coming to AP lunch & learn series in Houston, Texas. We had a record turnout, with a great cross section of companies represented – across...
- Insights About the Future of 1099 Issues in Financial Operations Matters
I was happy to see the article by Diane Sears in the latest issue of Financial Operations Matters, Is 1099 Issue Dead or just Resting? which focused on the continuing 1009 reporting dilemma. Although the heated debate over this issue has died down...
- President Obama Signs Repeal of Expanded 1099 Reporting Requirements
President Obama on Thursday signed into law a bill repealing the expanded 1099 reporting requirements from the 2010 health care law. The Senate passed the repeal bill in an 87-12 vote on April 5 after the House passed the bill in March.
- US Senate Passes the House’s 1099 Repeal Bill, Goes Next to the White House
Today, the Senate passed the House’s 1099 repeal bill, H.R. 4, in an 87-12 vote. The bill will go directly to the White...