On Thursday, Tribute Inc. owner Tim Reynolds appeared live on Fox News to speak about the repeal of the 1099 provision in the health care bill and its impact on small businesses.
Tim has added these thoughts:
Buried in the over 2000 page health care law is a provision that has nothing to do with health care, but has a big impact on small businesses. The provision requires businesses to send a 1099 form for all vendors to whom they have paid $600 or more during the year.
As many of you will know, I work with the National Association of Small Businesses – http://www.NSBA.biz and am currently the Vice Chair for Communications. In that capacity, I had the opportunity to be interviewed regarding the 1099 provision on NPR and also on Fox News last week. We have posted the Fox News interview above, and also on Tribute’s Facebook page here.
Up until next year (when the provision goes into effect), 1099 forms have been used to recognize payments to independent contractors that provided services. This was how those contractors could report income to the IRS, much like your employees use the W2 form. The new law changes the purpose of the 1099 and vastly expands the filing requirement.
It’s more than filing out and mailing this relatively small form, of course. You have to track down the vendor’s tax payer ID along with the address where he wants the form sent, and then file out and mail one copy to the vendor and one to the IRS. It’s a significant addition to the local, state and federal filing requirements that are already a big cost and burden on small businesses everywhere.
For distributors, of course, the burden is especially large. Most distributors have many hundreds of vendors and the new requirement will add to costs in a big way and divert attention from the essential tasks of serving their customers and growing their businesses.
The goal of the provision is to help ensure tax compliance. The IRS can (so the thinking goes) more easily police revenue by matching 1099 filings to a business’s sales, as reported on the tax form. But how will they manage this mountain of additional paper work that we will all be sending in? How many more employees will they require? What are the costs compared to the very loosely estimated benefits? No one knows. I, for one, am skeptical.
In the next few weeks the 1099 repeal bills will get some attention. In the House, action should be fairly quick. The new Speaker has assigned the bill as HR 4, meaning it will be among the first bills in the new congress to be debated and voted on. In the Senate, Senator Sen. Mike Johanns (R – Nebraska) will introduce a companion bill on January 25. Things are looking good, but I urge you to write or call your Representative and Senators and tell them how important this is to your business. Here is NSBA’s issue alert that contains more information and a draft letter that you can personalize: http://tinyurl.com/6z8qa2a.
Give me a call at 330-656-3006, or send me an email here if you would like more information on this issue.