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Devil in the details

When the landmark health insurance reform act beccame law in March, we noted that what was not known about it surely matched or exceeded what Congress and the public knew about the law at that time.

It did not take long to find some unpleasant surprises in the massive bill, or to begin efforts to remove them.

Exhibit A: the requirement that all businesses, tax-exempt organizations and government entities must issue 1099 tax forms to vendors from which they buy goods totaling $600 or more annually.

Currently, these firms and organizations must inform the Internal Revenue Service of the value of only services purchased. By adding goods this provision of the Patient Protection and Affordable Care Act will greatly increase the time and cost involved in compliance.

The Taxpayer Advocate Service, an independent office within the IRS, estimates that 40 million businesses and other entities will be subject to the new requirement. This includes some 26 million non-farm sole proprietorships, 4 million S corporations and 3 million partnerships.

In other words, the large majority of firms hit with the new requirement are small businesses, for which the additional cost would be particularly burdensome.

The TAS still is analyzing the requirement’s benefits and burdens, but it has issued a report expressing concern that the burdens "may turn out to be disproportionate as compared with any resulting improvement in tax compliance."

This week, the Senate failed to back two separate amendments that would revise or repeal this provision. One, proposed by Florida Democrat Bill Nelson with the support of the White House, would exempt firms with 25 or fewer workers and bump up the reporting threshold to $5,000 for the others. The second plan, put forth by Sen. Mike Johanns of Nebraska, would eliminate the requirement.

The problem with the Johanns amendment is not how it deals with the new 1099 requirement; rather, it is how the lost revenue from increased tax compliance would be replaced-by axing the Prevention and Public Health Fund, a $15 billion community-based wellness initiative.

The 1099 provision does not start until 2012, so lawmakers have time to devise a better fix. It should be one whose details all make sense.

9/17/10 (c) 2010 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.


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Karen Webber is the President and Founder of Webber CPA, PLLC, located in Gates. (Kate Melton)

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