1099-MISC Requirements to Change Again

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We’ve been hearing talk since last fall of the new 1099-MISC reporting requirements changing again. Now it looks as though those changes may be coming to fruition.

Last year, as part of the health care reform, Congress enacted two different changes to how Form 1099-MISCs were distributed.

The first change began on January 1st of 2011. It required all landlords receiving rental income to issue 1099s for all individuals and businesses (except for corporations) who provided $600 or more in services to the landlord during any one calendar year. In other words, a $700 plumbing bill from Roto-Rooter, Inc., was exempt from 1099-MISC requirements, but Larry the Plumber would need to get a 1099 if he was operating through a limited partnership, LLC or Schedule C business. You, as the landlord, were only exempt from issuing 1099s if Larry the Plumber could prove he operated in a Corporation.

The second change was set to start on January 1, 2012. Now, 1099-MISCs were to be required when your business bought $600 or more in either services OR goods, from all entities – Corporations included – during any one calendar year. So, as unlikely as it sounds, under current law you would be required to 1099 Office Depot or Costco next year, if you racked up $600+ in business-related purchases during 2012.

The intent of the legislation was to raise tax money to help fund the health care bill. The reality was shaping up to cost business owners in time and man-hours, as they would now have to devote a huge amount of time to tracking purchases, sending out W-9 forms, and getting hundreds of 1099-MISC forms prepared and mailed each year.

Since its passage, efforts have been underway to repeal all or most of these provisions. In his recent budget proposal, President Obama added his voice to the chorus and asked Congress to take up the issue of repeal. Now, it would appear (hopefully) that Congress is listening.

On February 17th, the House Ways and Means Committee approved two bills, H.R. 4 and H.R. 705, which together would both of the new 1099-MISC reporting requirements. The Committee Chairman, Dave Camp (R-MI) indicated that the two bills would be rolled together before going to the House floor for a vote in early March.

The Senate has already authorized the repeal of part of the legislation. Hidden in legislation reauthorizing the Federal Aviation Administration (because that’s the obvious place to look, right?), was a provision repealing the 2nd of the two new requirements, or the $600 payment for goods or services to corporations. However, the Senate hasn’t made any moves towards repealing the reporting requirement for payments related to rental property expenses.

For his part, President Obama included a provision in the FY 2012 budget package he sent to Congress on February 14 that would repeal the reporting requirement for payments to corporations. It would be replaced by a requirement for businesses to file an information return for payments “for services or for determinable gains aggregating to $600 or more in a calendar year to a corporation,” but would provide an exception for payments to tax-exempt organizations and eliminate the current-law requirement for information returns for payments for property. It also would provide regulatory authority to make certain exceptions for small businesses and other taxpayers for whom reporting could be burdensome. The proposal would be effective for payments made after December 31, 2011.

It seems pretty clear that something will pass, but in what form, we don’t know. So, for the time being, if you have begun collecting W-9s and Tax ID information you may want to slow down, but you may not want to stop altogether, or discard information already received.

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