Senate votes to repeal 1099 requirement for businesses
Phoenix Business Journal -
by Kent Hoover, Washington Bureau Chief Date: Tuesday, April 5, 2011, 10:41am MST
The Senate voted Tuesday to repeal a health care reform provision that requires businesses in Arizona and across the country to file a 1099 form with the Internal Revenue Service any time they spend more than $600 a year with another business.
By a 87-12 vote, the Senate passed legislation repealing the 1099 provision, which was included in health care reform as a way to help pay for that measure. Third-party reporting of income makes businesses less likely to try to hide income from the IRS, according to supporters of the provision.
Businesses already are required to file 1099s for payments of more than $600 to unincorporated service providers. The health care reform bill expanded this requirement in 2012 to goods as well as services, and applied it to all types of vendors. Small businesses contend this expansion would create a paperwork nightmare, forcing many of them to file hundreds of 1099 forms instead of just a few.
Senate passage of the bill, which previously cleared the House, sends the bill to President Barack Obama for his signature. The president supports repeal of the 1099 provision, but he doesn’t like how the bill makes up for the revenue that would be lost: It requires people who receive higher subsidies for health insurance than they should have to repay this money to the government. Obama, however, is expected to sign the bill.
The Senate defeated an amendment by Sen. Robert Menendez, D-N.J., that would rescind the bill’s subsidy repayment requirement if a study finds that would increase health insurance premiums or reduce coverage for small businesses.
"We all want 1099 repealed,” Menendez said.
But he said small businesses and their employees could be hurt by a "payback tax” from the subsidy repayment requirement.
Sen. Mike Johanns, R-Neb., said adopting Menendez’s amendment would force small businesses to wait for relief from the 1099 requirement. The House would also have to approve the Menendez amendment in order for the repeal bill to clear Congress.
"Let’s not vote for another alternative that’s just going to stall this out again,” Johanns said.
This is the seventh time that he’s presented a 1099 repeal bill to the Senate, he noted. Action is needed now because small businesses are feeling the pressure to change their accounting systems in order to comply with the 1099 requirement if it goes into effect next year, he said.
"Let’s vote to actually solve the problem,” Johanns said.
He also defended the subsidy repayment provision.
"Requiring people to pay back what they should not have received in the first place,” he said, is "good government, not bad policy."
Most business groups supported 1099 repeal and opposed the Menendez amendment.
"Small business owners oppose anything less than complete, immediate and certain repeal,” read a letter to senators from the Small Business & Entrepreneurship Council.
"We applaud Congress for taking a positive first step toward removing the excessive cost burdens and uncertainties imposed on franchise small businesses as a result of the health care law,” said Steve Caldeira, president and CEO of the Internatioanl Franchise Association.
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