Democrats try to take the lead for repealing onerous 1099 rule

Rep. Nydia M. Velazquez (D-NY), the ranking member of the House Committee on Small Business, has called for repeal of the onerous new tax reporting rule, which was enacted last year as part of health care reform.  By vastly expanding 1099 reporting, the new rule requires businesses to report nearly all expenses exceeding $600 to the IRS. During a hearing Thursday before the House Committee on Small Business, entrepreneurs testified that these new changes would be costly and time consuming.

"At a time when our nation's small businesses need to be powering our recovery forward with new jobs, we shouldn't be suffocating them in the red tape of additional tax regulations," said Velazquez.  "These new tax procedures were meant to level the playing field and close the tax gap, but the outcome will be to bury small businesses in paperwork."

The IRS currently requires businesses to issue a Form 1099 to individuals or unincorporated businesses paid $600 per year for services rendered.  The Affordable Care Act (ACA) law enacted last year expanded 1099 reporting significantly. Under current legislation, businesses will be required to report payments for goods, as well as services starting January 1, 2012. The new law also extends the 1099 obligation to transactions between businesses, as opposed to limiting requirement to payments to individuals. 

"The IRS has suggested that these changes will increase tax code compliance by only one-half percent," said Velazquez.  "However, for the honest, taxpaying small business, the new rules are going to mean ten to twenty times more paperwork.  It's simply not worth the tradeoff and we need to repeal this change before it goes into effect."

While the new reporting requirements are not effective until 2012, small business testified today that they are already taking on significant expense in preparation for the new rules.  Businesses testified they are hiring accountants, purchasing software, and changing business practices to be ready for the new 1099 requirements.

"With any new tax obligation, small businesses bear the brunt of compliance costs," Velazquez said.  "It is my hope that we'll be able to work with our Republican colleagues to correct these new reporting issues before they go into effect and divert resources from small businesses' job creating efforts."

Last week, the Senate approved an amendment that would repeal the new reporting requirement.  The White House has also suggested that it supports repealing the 1099 changes, so as to avoid penalizing small companies.

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