1099 and Sub-Contractor Changes by the IRS – Not worth the trouble!
It looks like the government is looking under the sofa cushions for lost coins again. In an effort to get some extra cash, $17 billion, 1099 reporting requirements will soon be changing. According to the 1099 reporting requirements found in the new healthcare law, The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, businesses must report every purchase to every vendor above $600 for 2012. This includes payments to corporations, previously not necessary.
On September 14, 2010, two separate proposals to reform that law did not pass. So for now, small businesses have a lot of paperwork to look forward to. For most all businesses, the new rules will require issuing 1099s for business payments not previously reported. Another change for 1099 reporting requires reporting “gross proceeds” and still remains very unclear. It is expected that this covers non-corporations. However, more information from the IRS is still needed.
Besides the mountains of paperwork (the opposite of being “green”), the IRS will be privy to (based on received 1099s) how businesses spend their money and with whom. Big Brother here we come!
While many agree that this level of reporting and burden is not worth the money the government expects to receive, it looks like it is going to become a reality.
The implications of these changes will mean getting a TIN (Tax ID Number) from most every vendor a business uses. Imagine having to generate 1099s at the end of the year to Office Depot and Marriot for office supplies and business travel? That is exactly what this will mean.
A recent Alert! article, “Legislators Target Independent Contractors and Firms That Hire Them – A Threat to the MR Industry and Research Practices” discusses additional proposals that could change the definition of a sub-contractor (typically receiving a 1099) versus an employee. This article points to the effort to “…eliminate Section 530, the safe harbor provision that allows employers to classify workers as independent contractors rather than employees. These bills would discourage companies from doing business with independent contractors by dramatically reducing the federal employment/tax certainty of treating service providers as independent contractors and materially increasing the penalties for misclassification.”
This change could also blur the lines between research participants and employees, further burdening businesses involved in administering incentives for survey and market research. Forcing a changing of survey participants into employees would be a nightmare and would result in all the nuances that go along with having employees (payroll taxes, unemployment claims, etc.). It would, however, make the employment rate “look” good.
Chanttel Allen, Managing Director