The massive health care bill pushed through Congress earlier this year will have plenty of unintended consequences. Nothing new in that, nearly all legislation creates new challenges while solving others. But the cynical part of me wonders if more members had actually read the behemoth bill before voting, perhaps at least some of those unintended consequences would be a bit more benign.
Take, for instance, the fact that Section 9006 of the “Patient Protection and Affordable Care Act” makes several changes to the tax code, including IRS Form 1099 reporting requirements.
Form 1099 is familiar to most of us. Historically, it had to be issued by any individual or entity involved in a trade or business that paid $600 or more in a calendar year to another individual or non-corporate entity for expenses like rent, interest and non-employee compensation. For agriculture, this usually means custom work, says Craig Althauser, Kansas State University extension agricultural economist.
The change has two parts. First, it says that corporations are no longer exempt payees for 1099 purposes. This means that you must now issue 1099s to corporations, except for those that are tax-exempt. Not a huge deal.
But here’s the kicker. The second part of the new rule adds a new type of expense for which 1099s must be issued. That’s because Congress added the word property to the description of expenses for which these forms must be issued.
Absent further clarification, Althauser says, “property” encompasses any product the farm purchases including, but not limited to: crop inputs such as seed, fertilizer and chemicals, feed, supplies, medicine, fuel….you get the idea.
“This change will have farms and ranches (and other businesses as well) spending time attempting to collect the names, addresses and federal identification numbers for every single person or entity, other than tax-exempt corporations, to whom they paid at least $600 for almost anything,” Althauser explains. “This will result in an incredible increase and time and cost, as preparation fees will presumable rise due to the vast increase in the number of 1099 Forms for which final preparation will be completed by tax prep firms.”
The increased reporting requirements are expected to raise $17 billion in federal taxes over the next 10 years as some income will be reported that otherwise would not be reported. However, the cost of compliance and the IRS need to process and verify all of these forms is not factored into that $17 billion, so that figure is somewhat suspect.
These changes are slated to take effect in 2012.
Legislation has been introduced to repeal this section of the bill (H.R. 5141), but it is still sitting in the House Ways and Means Committee awaiting action.
“If it is not passed, and 2013 arrives with Section 9006 of the health care reform bill still intact, thousands more of those envelopes with the message ‘Important Tax Document Enclosed’ will be arriving in mailboxes across the country,” says Althauser.
Gee, I can hardly wait to see what the next bill (that few in Congress read) has in store for us, let alone what else is lurking in this legislation.