New 1099 Reporting Law Repealed
New 1099 Reporting Law Repealed
On April 14th President Barack Obama signed into law a bill repealing expanded IRS Form 1099 reporting requirements that was part of last year’s health care legislation as a revenue-raising measure. The law repeals a section of the Patient Protection and Affordable Care Act of 2010 that would have required businesses and rental real estate owners to fill out 1099 forms for both goods and services valued at more than $600 and purchased from both unincorporated and incorporated businesses. The requirement was to take effect in 2012. The Congressional Budget Office had estimated the expanded reporting requirements would capture $21.9 billion in lost tax revenues on income that currently goes unreported.
However, the tax reporting requirement drew widespread criticism after Congress passed it last year. Subsequently, business groups led a vigorous campaign against the requirement, claiming that the reporting “requirement is an onerous burden on employers of all sizes and provides no health care benefits.”
President Obama finally agreed, declaring in his signing statement that “Small business owners are the engine of our economy and because Democrats and Republicans worked together, we can ensure they spend their time and resources creating jobs and growing their business, not filling out more paperwork.”
Of additional benefit to landlords, the bill Obama signed also repeals a separate tax reporting requirement that was passed in another law last year. That rule, which took effect January 1, 2011, required landlords to report more information about their business expenses.
The “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011” was introduced in the House of Representatives on January 11th, passed the House on a vote of 314 to 112 on March 3rd, and passed the Senate on April 5th on a vote of 87 to 12. These significant margins indicate the strong opposition to the requirements by both Democrats and Republicans.
With the bill signed into law, businesses will now continue to have to fill out 1099 forms only for services of $600 or more in 2011 and beyond and only for payments to unincorporated businesses for services.
During the debate on the repeal, the president and congressional leaders in both parties stated that the cost of repealing the 1099 requirement had to be offset by spending cuts or by increasing federal revenues. The nearly $22 billion cost of the 1099 legislation was offset by requiring some people, if their income level increases during the year, to pay back a portion of the subsidies they receive to join health insurance exchanges created under the health care law.
The expanded reporting requirement was a non-health related revenue-raising provision within the health law. The lost revenue due to its repeal is paid for in the new law by changes in the part of the health-care law that deals with the health insurance tax credits that low- and middle-income Americans will get. This is accomplished via a payback provision that recoups funds from people who exceed their estimated income level during the course of the year after receiving subsidies for health insurance.
Eligibility for the tax credits, which are paid directly to health insurers, is determined each year by looking at income from a prior year. At the end of each year, there is a reconciliation through which the government can seek repayment of credits from people whose incomes rose. The new law changes the calculation and results in more people being required to return overpayments.
The repeal law increases the amounts people would have to repay and accelerates the payback timetable. Any individual or family earning less than four times the federal poverty level will be eligible for the health coverage subsidy beginning in 2014. These subsidies will be provided on a sliding scale to help offset the cost of health care coverage purchases through state health care exchanges. However, any individual or family whose income increases above 400 percent of the poverty level (a threshold of $44,000 per year for individuals and $88,000 for families) will be required to repay all or part of the subsidy that they received.
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