Considered by some a “costly, anti-business nightmare,” legislation to expand 1099 reporting initiated a firestorm of criticism in recent months.
That was then. This is now.
On April 14, President Obama signed the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011. The Act repeals two provisions, both passed in 2010, that dramatically expanded requirements for filing IRS Form 1099.
According to the President, “Small businesses are the engine of our economy and… we can ensure they spend their time and resources creating jobs and growing their businesses, not filling out more paperwork.
Background
Any person or entity engaged in a trade or business—including a not-for-profit organization—that makes payments to individuals or unincorporated business for services rendered during the year likely falls under the federal government’s 1099 reporting rules.
If the total amount of such payments you make to any one person or business exceeds $600 for the year, you must report those payments to the IRS and to your payees using Form 1099. Examples of such payments include fees paid to independent contractors and directors.Traditionally, payments to corporations and payments for merchandise, as opposed to services, have been exempt from 1099 reporting.
Two Acts passed in 2010 largely eliminated those exemptions and dramatically expanded the long-standing rules for Form 1099 reporting: the Small Business Jobs Act and the Patient Protection and Affordable Care Act.
The stated intent was to help recipients of such payments prepare their returns, thus improving tax compliance and enhancing revenue for the IRS. In practical terms, the legislation would have dramatically increased the number of 1099s required to be filed with the IRS, as well as the administrative burden on businesses and individuals in tracking both payments and the recipients’ taxpayer data.
Impact of the Small Business Jobs Act
The Small Business Jobs Act expanded the definition of those engaged in a trade or business for Form 1099 reporting purposes, beginning in 2011.
Under the provisions of the Act, all business and individuals receiving rental income from ownership of any residential or commercial rental property, including such passive investments as vacation homes, were required to obtain taxpayer identification numbers for payees and file Form 1099.
This expansion of the 1099 rules for landlords and rental property owners is now repealed.
The Act also included a provision which increased failure-to-file penalties for everyone required to file Form 1099. This provision was not repealed.
Patient Protection and Affordable Care Act
Beginning with calendar year 2012, this Act expanded 1099 reporting rules to include payments made to corporations and payments made for merchandise and other property.
This expansion of the 1099 rules for payments to corporations and payments for property is now repealed.
Impact of the Repeal
Pre-2011 filing requirements for Form 1099 once again apply. In January of 2012, you must prepare a 2011 Form 1099 for any individual, unincorporated business, or law firm to which you paid more than $600 total for services rendered during the year.
If you’re confused by the bevy of recent changes, give us a call.
