Since no one apparently read – or had the time to read – the ObamaCare bill before it was passed into law, parts of it are just now coming to light that, to most, are going to be a surprise. For instance, a mandate having very little to do with health care but certainly a very costly tax mandate for business was slipped into the bill. Maybe this is why those additional 16,000 IRS agents are needed:
Under current law, businesses are required to issue 1099s in a limited set of situations, such as when paying outside consultants. The health care bill includes a vast expansion in this information reporting requirement in an attempt to raise revenue for an increasingly rapacious Congress.
Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s. When a business buys a $1,000 used car, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small shop owner pays her rent, she will have to send a 1099 to the landlord and IRS. Recipients of the vast flood of these forms will have to match them with existing accounting records. There will be huge numbers of errors and mismatches, which will probably generate many costly battles with the IRS.
As one CPA notes:
Under the health legislation, the IRS could be receiving billions of more documents. Under current law, businesses send Forms 1099 for payments of rent, interest, dividends, and non-employee services when such payments are to entities other than corporations. Under the new law, businesses will be required to send a 1099 to other businesses for virtually all purchases. And for the first time, 1099s are to be sent to corporations. This is a huge new imposition on American business, costing the private economy much more than any additional tax that the IRS might collect as a result.
This mandate will generate new compliance costs which will, as the CPA notes, cost businesses “more than any additional tax that the IRS might collect as a result”. As little as $600 in business supplies generates a 1099. It is no longer limited to the categories listed above, but to the size of the purchase. The practical fallout?
The House bill would extend the Form 1099 filing requirement to ALL vendors (including corporate) to which they pay more than $600 annually for services or property. Consider all the payments a small business makes in the course of business, paying for things such as computers, software, office supplies, and fuel to services, including janitorial services, coffee services, and package delivery services.
In order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold on your payments.
As Chris Edwards at CATO notes:
Private transactions are the core of a market economy, and the source of America’s growth and prosperity. Now the federal government is imposing a vast new web of red tape on perhaps billions of these growth-generating private exchanges.
If it were me I’d be figuring out how to make a whole bunch of $599 purchases, but that’s not the point, of course. This mandate and imposition on business is going to require a huge effort toward compliance and cost a lot of money. It’s just another reason for a business to postpone hiring because the money they were going to put toward a new employee is now shifted to the compliance requirement.
This is how government interferes in the economy in a non-productive way and ties up money that would otherwise be put toward productive economy and job expanding use.
The over-reaching isn’t only confined to the federal government. My latest Examiner column.