President Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (“1099 Act”) on April 14, 2011. This law repeals both the expanded 1099 information reporting requirements passed in last year’s healthcare reform legislation and also the 1099 reporting requirements imposed on taxpayers who received rental income enacted as part of last year’s Small Business Jobs Act.
The 1099 provision of the healthcare legislation would have required businesses, charities, and state and local governments to file a 1099 form with the IRS for every vendor it uses, regardless of incorporation status, for services and goods that exceed $600 in a year. Additionally, the 1099 reporting requirement was expanded in September 2010 to require real estate landlords to file 1099s to report payments of $600 or more made to service providers during the year (e.g., plumbers, painters, accountants, etc.).
The measure, which was scheduled to take effect on January 1, 2012, was intended to help fund healthcare reform by extracting more tax revenue from vendors who may have previously underreported their income.
The 1099 provision has been widely criticized for being too burdensome, adding significant time and cost to businesses for the added tax compliance and preparation.
In addition to repealing the reporting requirements, the bill also amends another section of the healthcare reform legislation by requiring people to return overpayments of insurance subsidies when their income becomes greater than the threshold used to calculate the subsidy.
As a result of the repeal, the 1099 reporting rules continue unchanged: Namely, under IRC § 6041(a), “All persons engaged in a trade or business and making payment in the course of such trade or business to another person” of $600 or more must report the amount and the name and address of the recipient to the IRS and to the recipient.
The code applies this requirement to payments of “rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income,” and the Treasury regulations add, “commissions, fees, and other forms of compensation for services rendered aggregating $600 or more” as well as interest (including original issue discount), royalties and pensions (Treas. Reg. § 1.6041-1(a)(1)(i)). There are exceptions to these requirements, including certain payments to corporations, wages to employees, payments to tax-exempt organizations and others.
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