Dallas Morning News: Health Care Tax Filing Rule Burdens Small Businesses
By Jim Landers; Dallas Morning News
The health care law includes a provision that requires even the smallest businesses to send a 1099 form to the IRS whenever they buy more than $600 a year in goods or services from a single company or individual.
Andy Ellard, who runs Manda Machine Co., a 20-employee manufacturing shop in Dallas, estimates the provision will take 160 hours of his bookkeeper's time.
"It seems like in government, you don't ever look past your nose to see what's going to happen in the future," Ellard said.
"Somebody says, oh, good, this is a great idea for raising $17 billion. But they don't think about all the costs involved to do things the proper way, and what a burden it is to us, especially as a small business."
The IRS estimates the provision could affect 40 million businesses, charities, nonprofit associations and other entities that would be required to file the additional reports.
After hearing from business people like Ellard, most members of Congress and President Barack Obama agree the 1099 provision needs to be repealed before it takes effect in 2012. Attempts to strip it from the law last year won majorities in the House and the Senate but still failed to get through.
Bill Rhys, tax counsel for the National Federation of Independent Business, said the provision is tangled in deficit politics.
"The revenue score [for the health care law] says this would have raised $17 billion," Rhys said. "The challenge going ahead is how to replace that on the score sheet."
Democrats, using estimates provided by the nonpartisan Congressional Budget Office, say the health care law as passed will save $143 billion between 2010 and 2019.
Republicans have said that the law would raise spending on health care and that the budget office used faulty assumptions. They made the same argument last week, when the CBO said the Republicans' "Repealing the Job-Killing Health Care Act" would cost $230 billion between 2012 and 2021.
The 1099 provision came out of the Senate Finance Committee, as Democrats were trying to find ways of lowering the cost of extending health insurance to 32 million more Americans.
In 2007, the Treasury estimated Americans were not paying $345 billion owed as taxes. Treasury officials suggested to the Finance Committee that an increased filing requirement would give the IRS better information on whether companies were really paying what they owe in taxes.
Ellard said he appreciates the rationale.
"I'm for everybody paying their fair share of taxes, but there's got to be a better way than this," he said.
Ellard said his company uses about 250 to 300 suppliers every year and has about the same number of customers.
"The hardest part is going be collecting the tax ID numbers – the phone calls, the e-mails, and then what do you do for those who don't respond?" he asked. "It seems to me it's going to create a big mess for my secretary to come up and prepare all these forms every year."
The IRS has said it will not require 1099 filings when businesses make payments with credit and debit cards, since those are now going to be filed with the IRS by credit card companies under a new, separate law.
Rhys said that won't be enough to make the provision palatable.
"You don't break down on your business tax form how much is cash, checks or credit cards," he said.
"This has absolutely nothing to do with health care," Rhys said. "It was an attempt to try to mask some of the cost."