Will Small Business Be Spared From More Form 1099 Requirements?

I often hear the phrase that "change is good."  However, as a skeptical CPA, I'll say to myself, "that depends." 

Two recent changes to the tax law that concern Form 1099 - MISC aren't very good for small businesses. The increased compliance necessary to meet the new changes could be quite burdensome for small business, and I believe won't really derive much revenue for the government.    In case you don't remember, Forms 1099 - MISC are prepared by the payer for services performed in connection with a "trade or business" to a payee-provider.   The Forms are given to the payee by the payer usually by January 31 of the following year.  They report the payee's name, address, taxpayer identification number and amount paid during the calendar year.  If the payee doesn't want to provide this information to the payer, the payer is required to withhold amounts from their payment known as "backup withholding".  This backup withholding is added in with the payroll tax filings.

The first change requires that businesses must now issue Form 1099 - MISC to all payees/vendors who weren't tax exempt entities and were paid $600 or more for the year.  Payments for property were also specifically included, too. Previously Form 1099's had to be issued to non-corporate payees/vendors who met the $600 threshold and were for business services.  This new change is part of The Patient Protection and Affordable Care Act (PL 111-148) or "Obamacare" and was expected to help pay for the new act by increasing compliance among non-reporting individuals and entities.  However, most of these non-reporting individual and entities were already covered under the previous law for several decades, now.   The primary type of entity left out was corporations, and they have their own forms to file each year already.  So I may be wrong, but I don't see how these new compliance measures will significantly increase revenues.

The second change has to do with rental properties and the individuals who own them and was part of The Small Business Jobs Act (PL 111-240).   Under this law individuals, who receive rent income and pay service providers $600 or more, need to file Forms 1099 - MISC for these payees.  In this case gardeners and utilities would need to receive a Form 1099 - MISC.  This requirement could be quite burdensome for retirees who live in a duplex and rent out their other unit.

Currently the US Congress is trying to repeal these changes after they originally passed them in their previous term.  As of this writing (February 27) the Senate has pass a bill that would repeal the first change regarding the "expanded" reporting requirements under Obamacare, but not the rental property owners' requirement.  The House Ways and Means Committee has approved a bill repealing both changes and has sent it to the full House of Representatives.

If the Congress is unable to repeal these new requirements, the reporting for rental property expense payments will take effect beginning January 1, 2011 and be reportable by the following year.  The expanded service reporting will start on January 1, 2012.  Let's hope they can get the changes in on time and that will be good.