As soon as the speech ended, there was a flurry of interpretations about its potential implications on health care reform and the 1099 reporting requirements that are part of the funding provisions. Just a day before the State of the Union, the Senate picked up the repeal effort on the 1099 tax provision. Let’s take a look at what is really being said.

President Obama’s words from the State of the Union on January 25, 2011 were: “Let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”

The current discussions about 1099 reporting changes are focused on the impact to small businesses and lean toward “repair”, not “repeal” of the 1099 reporting requirements. I blogged on Tuesday about the repeal initiatives in the House.

Within the past few days, multiple new bills have been submitted to the Senate to repeal the 1099 reporting requirements. According to Senate Finance Committee Chairman Max Baucus (D-Mont.), who submitted a bill to repeal the expanded 1099 reporting requirements in the health care reform act along with Senate Majority Leader Harry Reid (D-Iowa), “We have heard small businesses loud and clear and are responding to their concerns. Small businesses need to focus on creating good-paying jobs – not filing paperwork. Many of my colleagues on both sides of the aisle want to work with the small business community to eliminate these requirements, and it is my hope we can come together to pass legislation quickly.”

Another bill was submitted to the Senate by Senators Mike Johanns (R-Neb.) and Joe Manchin (D-W.Va.). Manchin stated “We’re going to work hard to repair this part that basically is so onerous on the small jobs that people depend on that come from the businesses that would have to be reporting,” again, with the emphasis on the term “repair” over “repeal.”

The expansion of the 1099 reporting requirements was originally proposed during the Bush administration aimed at better tracking business expenditures, earnings, and tax liability.
It is unlikely that the provision will repealed vs. amended, with proposed amendments to date looking at increasing the reporting threshold or eliminating the reporting requirements for small businesses.

Given the President’s statements on Wednesday and the bills before the Senate, it is likely that we will see amendments to the 1099 reporting requirements that ease the burden on small businesses. However, any potential amendments will likely not significantly decrease the impact of the 1099 reporting requirements on large enterprises. Read more about the impact.

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