By Tammy S. J. Schneider, CPA
The Patient Protection and Affordable Care Act has created new Form 1099 reporting requirements that have the potential to impose significant tracking and paperwork burdens on your company. The government projects the new reporting rules will generate $17 billion of tax revenue through 2019. The Congressional Research Service said, “As a general rule, taxpayers are more likely to pay taxes on income if the realization of that income has been communicated to the IRS.” Though the new requirements do not take effect until 2012, planning now for their implementation will save you aggravation later.
Under the current rules, businesses must issue form 1099- MISC to report payments that aggregate $600 or more during the calendar year to any single payee, excluding corporations. Typically, the reported payments are for services. Purchases of tangible personal property are not reported. Form 1099-MISC reports the payee's name, address, tax identification number and the amount paid in the calendar year.
Form 1099-MISC is due to the payee by January 31 and must be filed with the IRS by February 28. Many businesses wait until it is determined that a 1099 is required before gathering the needed reporting information. Gathering information after-the-fact can be difficult, resulting in filing errors or failure to file completely. Neglecting to file these forms or filing forms with missing or incorrect information can result in penalties up to $50 per form, which can add up quickly.
Along comes the Patient Protection and Affordable Care Act. Included in the many pages of the new healthcare law are new reporting requirements effective for payments occurring in 2012 and beyond. Here's where the already complex 1099 filing requirement escalate with increased tracking and added paperwork burdens. Under the new reporting requirements, for-profit corporations and payments for tangible personal property are no longer exempt from reporting.
For example, under the new reporting requirements, your business would have to obtain the necessary information and provide a 1099 to:
• The restaurant you frequent regularly with clients, where you spend more than $600 a year
• The incorporated business that you use for your computer maintenance contract
• The dealership that you purchased your company car from
• The individual you paid $1,000 for used office equipment
Under the old rules, none of these people would be issued a 1099. Under the new rules, all of them would be required to get one.
Think of your own business and the people you pay throughout the year. As you can imagine, the new requirements will create a flurry of 1099 forms that must be generated, that never had to be generated before. The information gathering and reporting has gotten a whole lot bigger, harder, and time consuming especially for small businesses that do not have a large staff to handle these responsibilities.
To top it off, the penalties have increased as well. Filing forms late, with incorrect information, or not filing at all will result in a $50 penalty for unintentional noncompliance, and a $100 penalty for intentional noncompliance.
Here's what you can do to prepare for these new reporting requirements:
• Before you make a payment, make it company policy to obtain the payee's full name, address and identification number. You can use Form W-9 to gather this information. The form can be obtained at www.irs.gov.
• If for some reason you need to make a payment before getting this information, be sure to send a Form W-9 with the payment requesting the information. Follow up to make sure you have the information long before it's needed for the year-end reporting.
• Take a look at your accounting software for some help. Many accounting packages, such as QuickBooks and Peachtree, have the capability of tagging payees for 1099's, housing the information needed and even printing the forms for you.
Although there are a few proposals in Congress focused on lifting some of these added burdens on small businesses, it seems inevitable that at least part of the new requirements will remain. Taking steps now to put your procedures in place will save you the headache that awaits unprepared business owners when the regulations take effect.
Tammy is a CPA with Glass Jacobson in Owings Mills. She works primarily with small to mid-size business owners as a strategic partner to help their business operate more profitably and empower decision makers to make better decisions.Tammy may be reached at 410-356-1000 or at email@example.com.