Small businesses threatened with 1099 tax form tyranny provision in health care bill
May 24, 2010
According to a recent report from CNNMoney.com, the massive U.S. health care system overhaul includes more than just a transition to government-run medicine. A small section hidden away in the 2,409-page bill requires all businesses to send 1099 tax forms to every company or individual from which they purchased more than $600 in services and goods throughout the tax year, beginning on January 1, 2012.
As you’ll see below, this new law threatens to cause a wave of paperwork chaos across the entire U.S. economy, stifling the operations of small businesses and driving more jobs overseas.
1099s required for virtually any expenditure
For those of you who aren’t familiar with a 1099, this tax document is typically issued to independent contract workers who receive payments for work they’ve done. “Employees” of businesses are issued W-2 forms at the end of the tax year while independent contractors and other freelancers making money outside of the wage structure receive 1099 forms.
But the new change (conveniently slipped into the health care bill that nobody actually read prior to voting on it) drastically expands the scope of 1099s. Not only will contract workers be receiving them, but so will millions of individuals and companies that receive more than $600 in payments for services and products they provide throughout the tax year.
And if you’re a small business owner, you will be required to issue a 1099 to every business from which you purchased more than $600 worth of goods or services.
If you buy a laptop at Best Buy, for example, you will be required by law to issue a 1099 form to Best Buy. If you purchase over $600 in internet services, you need to issue a 1099 to your broadband provider. If you get a car repair over $600, you have to issue a 1099 form for that, too.
This law might as well be called the “Accountant employment act of 2010″ because it will drastically expand the mountain of tax paperwork needed to be filed by all U.S. small businesses and corporations.
How the changes will really impact small business
Remember: The new law will require 1099s to be issued to both individuals and corporations. This means that a musician who buys an expensive new guitar will have to send the retailer a 1099 at the end of the year for that purchase. A florist will have to send 1099s to each of her suppliers as well, including the flower growers, the ribbon company and even the place where she buys tape and scissors if those purchases exceeded $600 throughout the year.
In fact, the more sources businesses buy from, the more 1099s they will have to issue, which will likely cause many of them to consolidate their vendors.
Do you see where I’m going with this? These “small” changes are going to have a monumental impact on how business is run in America, particularly small businesses who are already strapped with heavy regulatory burdens. 1099s will be used for a lot more than just taxing compensation. They will be used to tax virtually all business expenses, driving up prices for everyone.
The changes are also going to create an “avalanche of [new] paperwork”, according to Bill Rys, tax counsel for the National Federation of Independent Businesses. Business owners are going to have to spend a lot more time tracking purchases and saving receipts, which for many is going to be a logistical nightmare that could drive them right out of business.
Small businesses will go out of business, thanks to the IRS
Those of you that own or operate a small business already know how difficult it can be to stay afloat and compete in today’s economy, especially during tough times. Besides the regular day-to-day operations, there are all kinds of fees, taxes and other regulatory burdens that make doing business a challenge.
Can you imagine having to track and tally every single business purchase you make throughout the year and send 1099 forms to all of them? How about having to collect names and taxpayer identification numbers from every vendor or payee that you dealt with? Can you imagine how long it would take on the phone with Wal-Mart customer service to try to obtain the company’s tax ID? Multiply this by the other five hundred companies you do business with, and you start to get an idea of the new burden this is going to place on small businesses across America.
It’s going to take a whole lot more time to comply with these rules, and many small businesses will probably have to hire someone full-time just to take care of it all. The additional expense will either further strain companies who can take the hit (which will just drive up prices for consumers) or force them out of business. But no matter how you look at it, it’s a lose-lose situation for American businesses.
And what about all the companies on the receiving end? Imagine the flood of 1099 forms companies like Apple will receive at the end of the year from all the freelancers who bought new computers from them? Or Office Max for millions of dollars of office supplies? The burden will be tremendous not only on those who have to track and send all the 1099s, but also on everyone who receives them.
And it’s not just the big guys that will bear the burden. There are plenty of small, family-owned suppliers who are going to have a tough time complying. Many of them will most likely be forced out of business because they won’t be able to absorb the cost. Or businesses will choose instead to make purchases only from large “one-stop” shops because the paper trail will be a lot easier to manage.
Government greed and corruption is ruining America
The U.S. economy is already in shambles and many Americans are unemployed, but leave it to the American government (and the puppet masters who control them) to increase the burden on American business even more. Are these people out of their minds?
This small tax change is going to have huge ramifications once it kicks in starting in 2012. Small businesses will take the biggest hit, resulting in even more lost jobs and higher prices for goods and services. Many companies might decide to just pack up shop now and move to another country before it all kicks in, and that means more American jobs being exported to other countries.
The whole thing speaks volumes about how things are run in Washington where it’s all about money and control. Bureaucrats are always looking for new ways to pass new laws that will bankroll their out-of-control spending programs. You know… the ones that get them reelected.
Fortunately, not all politicians are in on the game. Rep. Dan Lungren (R-Calif.) recently introduced a bill called “The Small Business Paperwork Mandate Elimination Act, which would rescind the 1099 provisions from the health care bill.
It’s a good start, but what about the rest of the politicians? Where is the outcry from the alleged “public servants” over tax changes that threaten to destroy American small businesses?
Small businesses are the primary drivers of our economy. They are the ones responsible for real job creation in America. Provisions like the 1099 mandate only work to destroy the very fabric that has held America’s economy together. Any government that tries to destroy this crucial sector is only accelerating the country’s financial demise.
It’s time for people to wake up and take a stand against this paperwork tyranny. A nation drowning in tax forms can’t get much of anything else done, and Washington, it seems, just can’t help but heap another tax compliance paperwork nightmare upon the People.
That is has all been hidden inside the health care reform bill is yet another insult to the intelligence of us all. Who do these politicians think they are? How quickly they forget that Government derives its power from the People and not the other way around.