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The 1099 solution

When the Republicans gained control of the U.S. House of Representatives in January, it was only a matter of time before they began taking an ax to last year’s landmark health care law. This week, a much-reviled provision—the expanded 1099 reporting requirement—went on the chopping block.

In a lopsided vote, the Senate approved a repeal measure passed by the House in March, sending the bill to the White House for the president’s signature.

This provision was perhaps the first unwelcome surprise to emerge from the Affordable Care Act. It required businesses, tax-exempt organizations and government entities to issue 1099 tax forms to vendors from which they buy at least $600 in goods annually.

These organizations already must issue 1099s when they buy more than $600 in services from a vendor in a year. Adding goods to this requirement would greatly increase the cost and time of compliance.

The independent Taxpayer Advocate Service within the Internal Revenue Service estimated that of nearly 40 million entities subject to the new requirement, more than three-quarters would be small firms.

Acknowledging this "unnecessary" burden, the president called for its repeal. With strong bipartisan support for repeal, why has it taken so long? Money.

The 1099 requirement really was never about health care; it was about how to pay for it. The provision was expected to bring in some $22 billion over a decade. For months, lawmakers have debated how to replace the forgone revenue.

Early versions of the repeal legislation offset the lost revenue by ditching the Prevention and Public Health Fund, a $15 billion community-based wellness initiative. The final bill instead raises the amount that low- and middle-income taxpayers who receive credits to pay health insurance premiums would need to repay if their income rises.

Some Democrats labeled this a tax hike-and affected taxpayers are likely to agree when they see how much their cost to repay the subsidy will jump. But at this point, the voices in favor of repealing the 1099 provision are much louder.

Did the 1099 requirement deserve to go? Absolutely. Did Congress choose the best alternative? It’s much harder to be certain about that.

4/1/11 (c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.

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