Thursday, May 06, 2010

Thankyou Washington

CNN Money brings the bad news:

NEW YORK ( -- An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.

Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.

Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.

But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.

The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.

Taken together, the two seemingly small changes will require millions of additional forms to be sent out.

"It's a pretty heavy administrative burden," particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.

I am a small business, and I can see much new grief coming with this change. The big problem won't be the half dozen big suppliers who I know I'll be buying $600 worth of stuff from. It will be with all the smaller purchases I make throughout the year. They may or may not add up to $600, so I'll have to keep a running total on all of them.

And by the way, the federal government can't even properly send out it's own 1099's. I get several from various agencies every year and sometimes I suspect the numbers were arrived at by throwing dice. What you gonna do? They're the government. I have no doubt they'll punish me for any shortcomings they might find in my paperwork though.