Recent 1099 reporting requirements (The Housing and Economic Recovery Act of 2008) say electronic payment processors need to provide 1099s to the IRS and merchants beginning in 2011 on the new 1099-K form.
Hidden in the health care bill (Patient Protection and Affordable Care Act (Sec. 9006)), are additional new 1099 reporting requirements that require your business to file a 1099-Misc for every vendor you paid more than $600 in a year. Businesses are accustomed to filing 1099s for services purchased from un-incorporated entities, but the new law (effective beginning in 2012) adds products and services purchased from all entities.
What’s more, the penalties for not filing are going up in 2011: $30 penalty for filing a 1099 within 30 days of due date; $60 penalty for filing a 1099 after 30 days but before August 1; $100 penalty for filing a 1099 on or after August 1; and $250 penalty for intentional failure to file.
Your businesses filing requirement
Does this mean you need to file a 1099-Misc to your electric company, office supply store, and materials supplier? If you paid them more than $600, the answer is yes, Yes, and YES! To meet your filing requirement, you need names, addresses and EINs for every vendor; from the local hardware store to Wal-Mart that you paid more than $600 to.
When my business purchases a piece of equipment for $2,000 and pays a $1,000 deposit with the order on the business credit card and the balance with a company check to the same vendor, I am supposed to keep track of how I paid the vendor and not report the amount that was paid by credit card. If I’m using a computerized bookkeeping system, I can get reports out of the system and will likely by the end of next year be able to generate 1099s from them, but for the millions of small businesses who aren’t tracking how they paid each of those vendors, they will have to filter back through all their receipts for that information.
On the receiving end
If you run a business you not only have to file these burdensome forms, but you’ll likely be receiving them and probably chalk full of errors. Someone in your business needs to compare your 1099s to your records. Does the 1099 include tax or not? How about reimbursed expenses? Was the payment sent on December 31st and received on January 4th?
What happens when a small business client purchases services from me and pays me with a credit card? I receive a 1099-K from the credit card processor and could potentially receive one from the client in error. My income appears to have just been doubled. I now have to contact the client and request a corrected 1099-Misc that will need to be filed with the IRS.
Two more failed attempts
In the after-math of this new law, there have been several attempts via bill or amendment to repeal or revise this nightmare. However, on November 29th, two more senate amendments (4713 and 4702) were shot down attempting to repeal the new 1099 reporting requirements. Though the Johanns (Rep. Senator from NE) Amendment (4702) came close, needing only 6 more votes.
