Friday, January 21, 2011

Is Your Business Ready For The New 1099 Reporting Requirements?

Does Your Organization Pay Any Single Vendor $600 or More?

In March 2010, President Obama signed into law a new comprehensive health care reform law. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (Health Care Act) focus on expanding health care coverage and controlling the related costs. In an effort to pay for the Health Care Act and curb unreported or under-reported revenues, the Health Care Act contains critical provisions that change information reporting requirements. These changes could drastically increase the paperwork burden for small businesses, including not-for-profit organizations.

Does your organization already have everyone’s taxpayer identification number on file? Is your organization’s accounting system and accounting staff capable of preparing dozens of Form 1099s? When and where do you start?

In general, all persona engaged in a trade or business must file with IRS An information return for payments made to another persona in the course of trade or business that constitute fixed or determinable income of $600 or more in the tax year. The payer is also required to provide the payment recipient with an annual statement showing the aggregate payments made and contact information for the payer.

Word is that this includes merchandise used in your business, for example a computer purchased from Costco would require the business owner to collect the necessary information from Costco and provide them with a Form 1099. Landlords will have to provide a 1099 to anyone performing work on their rental properties, and if you purchase an aggregate of $600 or more in paper, pens and toner cartridges from Office Depot or Staples, guess what?? A 1099 is required.


To aid in the compliance of these new requirements, the IRS double the penalties for failure to correctly file information returns. The new penalties range from $30 to $100 per form 1099 for inadvertently failing to file and a minimum penalty of $250 per Form 1099 for intentional failure. If an organization fails to obtain a payee’s taxpayer identification number, they may have to begin backup federal income tax withholding at a 28% rate on payments.


Explaining the administrative nightmare to lawmakers has fallen on deaf ears. Amendments to the Health Care Act that would have repealed the increased Form 1099 requirements failed to pass in the Senate in September and again in November 2010. Since the fate of the provisions are so uncertain, organizations should be prepared to comply with the new Form 1099 requirements thus avoiding a stressful nightmare at the end of 2011 scrambling to get everything in place.

If you have questions or need assistance with compliance please contact me for a free one hour consultation.