An estimated 40 million small businesses and non-profits will face stiff penalties for failing to comply. This massive increase in filing requirements breaches computerized accounting; 1099 paperwork requires hand-generated reporting. Business offices will be forced to reprogram and overhaul their accounting procedures to comply.
A company that currently generates a dozen 1099s per year could file 600 reports when the system goes into effect in 2012. Although big business will see little change under the new law, small businesses, particularly those that farm out tax preparation at $74 per hour will feel more pain at tax time.
The new regulation was under advisement during the Bush administration. In preparation of the 2008 budget, discussions of a 'tax gap' - businesses not paying their fair share set the ball in motion. Tom Henschke, president of the Pennsylvania-based SMC Business Councils, one of the first organizations to offer analysis of the 2010 health care amendment noted, “…two administrations can claim credit for this."
CPAs are recommending clients begin handing out W-9 forms in advance of the new law. W-9s document tax identification data for withholding purposes. Many small businesses are behind the curve in preparation for the change. Although a tax gap surely exists- under-payment of $300 billion in federal taxes; penalizing small businesses, non-profits and local government with unreasonable cost and paperwork is onerous. Honest business people shouldn’t be punished to enable the IRS to ferret out tax evaders.
Congressman Scott Murphy who represents the Washington County region of New York authored H.R. 5982, the Small Business Tax Relief Act of 2010. His bill would have eliminated the 1099 reporting requirement for small businesses. H. R. 5982 would have also closed tax loopholes for corporations who ship jobs overseas. 5982 came to a vote in July, but failed to garner the two-thirds majority required to pass. Those concerned with the impact of expanded 1099 filings on our communities should contact their member of Congress and refer to H. R. 5982.