The IRS is working to figure out how the new health care law will affect small businesses. The outlook: lots more paperwork, but not for a while.
A new IRS report, out last week, expresses concern that a new reporting requirement in the Patient Protection and Affordable Care Act may impose "significant compliance burdens on businesses, charities, and government agencies."
Starting in 2012, all businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they purchase goods totaling $600 or more during a calendar year, according to the report from Nina E. Olson, National Taxpayer Advocate (an independent position within the IRS). Purchases made with credit or debit cards will be exempt, however.
Here's how the new requirement is expect to play out, according to an IRS summary of Olson's report:
"To meet this requirement, these businesses and entities will have to keep track of all purchases they make by vendor. For example, if a self-employed individual makes numerous small purchases from an office supply store during a calendar year that total at least $600, the individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases. The provision will have broad reach."
About 40 million businesses and other entities will be subject to the new requirement, including roughly:
- 26 million non-farm sole proprietorships
- 4 million S corporations
- 2 million C corporations
- 3 million partnerships
- 2 million farming businesses
- 1 million charities and other tax-exempt organizations
- More than 100,000 government entities
The burdens "may turn out to be disproportionate as compared with any resulting improvement in tax compliance," the report states.
Efforts are underway in Congress to repeal the 1099 portion of the health care legislation.
"It's clear there is bipartisan agreement that the 1099 provision contained in the health care law will have a direct negative impact on small businesses," Bill Rys, tax counsel for the National Federation of Independent Business, an advocacy group, said this week.