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. 

 

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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.


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