There has been no shortage of speculation about a forthcoming repeal of the 1099 reporting changes that were included in the passage of 2010’s Patient Protection and Affordable Care Act. Under the new law, companies will be obligated to perform 1099 reporting on a much larger population of vendors than in prior years*. As a result of these changes and the subsequent debate, we need to seriously ask ourselves if it is likely that the law will ever be repealed and what, if any, affect should that have on the manner in which we prepare for the forthcoming changes.
In response to the legislation Congressional Democrats and Republicans have both submitted repeals and or amendments in an effort to undo some of what many see as overly burdensome elements of the new 1099 reporting requirements. The first wave of these efforts -amendments to raise the $600 limit and to repeal the law altogether – were both denied by the Senate on September 14th. This Monday, similar amendments were introduced by Senate Democrats and Republicans to the Small Business Jobs Act but… neither amendment received the necessary 60 votes to be included in the final bill.
Although, many accounting professionals, politicians and small business owners are searching for ways to either manage or overturn the new requirements, it is important to acknowledge that “repeal” is not a fait accompli. In fact the opposite may be more likely in this case; consider that the 1099 reporting changes are not new ideas from the 2010 Obama administration. The idea dates back to GAO studies conducted over several years. The recommendations to alter the 1099 reporting is clearly articulated in a 2005 report (and others like it) where the GAO reports that 92% of small businesses are not filing 1099’s which translates into significant losses to the federal government. Given this long history and planning, the new 1099 reporting changes appear to have considerable stability and support.
* As a bit of background, the new amendment will require reporting for all for-profit corporations (excluding tax-exempt corporations) as well as for any payments made for property (goods, merchandise, supplies, raw materials, equipment, etc.) In addition, the new requirements require reporting for any supplier that has receive $600 or more in aggregate payment for a calendar year. A close look at this requirement reveals that where companies were performing 1099 reporting for less than 10% of their supplier populations they will now be reporting for more than 90% of their suppliers. Recently, a Lavante client estimated that its 1099-applicable suppliers could jump from only 2500 companies to over 50,000 when the new law takes effect. Because this requirement will have a major impact on organizations, it is important to begin developing a plan to effectively manage this process as soon as possible.