Congress Approves Repeal of 1099 Reporting Requirement
May 16, 2011
On April 14, President Obama signed into law House Resolution 4 (H.R. 4), which repealed an unpopular provision of the new health care law that would have created a paperwork burden for many small businesses. The passage of H.R. 4, which repealed the 1099 reporting requirement, was the culmination of many months of effort by small businesses across many industries to convince lawmakers to repeal the provision before it became effective in January 2012.
This repeal was hailed by many contractors in the HVAC industry as providing needed relief from an onerous IRS regulation.
AN UNPOPULAR PROVISIONIn March 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law. Included in the PPACA under Section 9006 was a provision that would have required businesses to file a 1099 tax form with the IRS for every vendor they paid $600 or more to in a year. Slated to become effective in January 2012, Section 9006 was included in the law as a way to increase revenue to offset some of the costs of the new health care program.
Yet many small business owners, including HVAC contractors, protested this provision, saying it would cause unnecessary paperwork and overhead costs. When asked for their opinion on the 1099 reporting requirement earlier this year, many HVAC contractors responded that it would have a negative impact on their businesses.
For example, Martin Hoover, president of Empire Heating and Air Conditioning (Decatur, Ga.), said the provision would create “ridiculous, needless paperwork.”
To put it into perspective, Tommy Castellano of Castellano’s Air Conditioning & Heating (Tampa, Fla.) pointed out that the 1099 reporting requirement would require his business to issue 1099 forms for every office supplier, equipment supplier, material supplier, gas supplier, auto repair supplier, etc., that his company does business with. “This law [would have increased] the paperwork about 1,000 percent - more than quadruple what we report right now,” Castellano said.
Others expressed their concerns with how the reporting requirement would raise their costs. Paul Sammataro, president of Samm’s Heating and Air Conditioning (Plano, Texas), said, “It will cost our company more money - it’s as simple as that. Our CPA fees will increase to have all the forms completed. Then we hope that all the information needed from our vendors is accurate. If there are errors or we cannot obtain a Social Security number or fed number and file late, we can expect a nice penalty.”
Because of contractor concerns like these, it was no surprise that the Air Conditioning Contractors of America (ACCA) and its members joined the movement to repeal the 1099 reporting requirement.
LEADING THE WAY FOR REPEAL“ACCA was one of the first associations to recognize that the cost and burdens of compliance, from collecting the required names, addresses, and taxpayer ID numbers from all vendors to filing the forms with the IRS, would pose a serious hardship on most small businesses,” said Charlie McCrudden, vice president of government affairs for ACCA.
He explained that the reason behind the provision was to close the tax gap between what is owed and what actually gets paid. This gap is caused by many businesses that seek to avoid paying taxes through underreporting and noncompliance. While McCrudden noted that this is a problem, he pointed out it was not fair to “penalize legitimate small businesses with this filing burden.”
Dave Kyle, general manager of Trademasters Service Corp. (Lorton, Va.), said that he started preparing for the administrative requirements of the 1099 forms shortly after the health care law was passed. “We had to start lining up the W-9 forms, which we collect to be able to produce the 1099 form in the future,” he explained.
Kyle said that he and his staff had many questions about the 1099 requirement as they discussed the possible scenarios for vendors they purchase more than $600 worth of goods and services from in a year. For instance, he pointed out, his company purchases a lot of training materials and books online at Amazon.com. However, when the bills come to the office, they frequently list independent merchants that are selling through Amazon. “So who do we create a 1099 form for? Amazon or the sellers?” Kyle asked.
“On the macro level it probably appeared to be good idea, but when you get down to the weeds on the micro level, it’s practically impossible,” he said. As a result of these questions and concerns about the paperwork burden, Kyle was active in informing his Congressional representatives that he supported repeal.
Another contractor who was particularly active in voicing the call for repeal was Jimmy Weaver, president of Precision Air (Seagoville, Texas). According to Weaver, the ramifications of the 1099 reporting requirement were “primarily burdensome paperwork to do something that we already were required to do - it was just additional clerical work to maintain 1099s for everybody from the yard keeper to Wal-Mart.”
Weaver continued, “The provision was in there to try to catch money from what they felt was the underground economy - people taking money under the table illegally in cash. We were always supposed to do 1099s; they just raised the bar to include everybody.” And, he continued, “Honestly, it probably would not have affected the people who were doing it illegally to start with. It would have put an additional burden on the people who were already trying to do it correctly.”
To make sure his voice was heard in the capital, Weaver flew to Washington, D.C., and met with his Congressional representative. “I made a personal and written request that the bill be repealed,” he said, adding that he also contacted both of his senators via e-mail and dropped off letters at their offices.
Weaver and Kyle are representative of many other HVAC contractors who voiced their disapproval of the 1099 reporting requirement to Congress. McCrudden added that ACCA experienced an overwhelming response from its members after sending out legislative alerts about the repeal bill.
COMPETING REPEAL EFFORTSUltimately, the government responded to the concerns of the small business community. In February, the Senate passed a bill to repeal the 1099 reporting requirement, and then in early March the House passed a different repeal bill. According to McCrudden, “While both chambers of Congress voted affirmatively to repeal the 1099 filing requirement, the two bills were different in how they would pay for future revenue losses caused by the repeal.”
He explained, “The House-passed bill included a repeal of an additional Form 1099 expansion that was included in another law late last year, and the bill offsets the cost of both repeals with a reduction in a subsidy for premium payments under the new health care law.”
Ultimately, the Senate decided to consider the House version of repeal, and passed H.R. 4 on April 5. The bill was subsequently sent to the president for executive approval, and he signed it into law on April 14.
At that time, the White House released the following statement from President Obama:
“Today, I was pleased to take another step to relieve unnecessary burdens on small businesses by signing H.R. 4 into law. 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. I look forward to continuing to work with Congress to improve the tax credit policy in this legislation, and I am eager to work with anyone with ideas about how we can make health care better or more affordable.”
Publication date: 05/16/2011