The 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 to a supplier per year
The new amendment will now create requirements for reporting for:
- All for-profit corporations (excluding tax-exempt corporations)
- Payments made for Property (goods, merchandise, supplies, raw materials, equipment, etc.)
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 include: Providers of Goods, Corporations, Tax Exempt Organizations, Internal Organizations, and Retirement Plans. 1099’s are only required for a small subset of the suppliers where payments were made. This was typically well less than 10% of supplier payments.
- After: Companies will be required to submit 1099’s on all for-profit companies who receive payments greater than $600. This will typically be 95+% of supplier payments.
- 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?
- New law becomes effective for all payments made after December 31, 2011.
- Companies should plan to start collecting and validating W-9’s & 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 can help significantly to help companies automate the collection of W9’s as well as the require IRS TIN-match. At the very least this huge work load can be eliminated. We encourage people to learn more at HERE.
How will this effect AP and other financial personnel at corporations?
The new Legislation poses a significant burden to corporation 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 1099-application 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:
- $250 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 steep increases that the new amendment poses, it is widely believed that the many aspects of the new legislation will go through an appeals process.