Capitol Comment: Health Care Law Reporting Regulations Crushing to Small Businesses
One tiny and unrelated provision that was tucked into the new health care law will cause a major paperwork burden for nearly 40 million American businesses beginning in 2012.
Under the law, businesses large and small will be required to file an IRS 1099 reporting form for every business-to-business transaction that exceeds $600. This adds another layer of regulation for employers that are already struggling in this economy.
Prior to passage of the health care law, businesses had been required to file a 1099 form only when purchasing more than $600 worth of a service from unincorporated vendors, such as freelance graphic artists or self-employed consultants. This original tax law was written to make sure individuals working in service related industries or on a contract basis would report and pay taxes on their earnings.
But the provision in the health care law expands this reporting requirement to now cover all transactions with other businesses, including the purchase of both goods and services. So, when a company buys $600 worth of office supplies from Office Depot or Staples, it must file a form. If a small business owner purchases a plane ticket from Dallas to Denver for a meeting, she will have to submit a form if that ticket is more than $600.
When a company pays its rent, invests in new equipment, or simply stocks up on paper towels and hand soap Ã¯Â¿Â½ it will have to account to the federal government. And so it will go for each and every purchase that exceeds the reporting threshold.
One study found that small businesses will go from filing an average of ten 1099 forms per year to 200 Ã¯Â¿Â½ meaning the volume of paperwork would increase by 2,000 percent!
Unfortunately, those especially vulnerable to the negative impact of this requirement are the ones who are already hurting most in our economic climate Ã¯Â¿Â½ small businesses.
Corporations and larger companies will see their operating costs rise, but many of them have dedicated bookkeepers or full accounting departments, enabling them to more easily take on the heavier workload. But most small businesses will not be so fortunate.
Already scarce resources and stretched workforces will have to be diverted from productive business activities to cumbersome reporting tasks.
Rather than focusing on company expansion, job creation, and wage growth, a business owner might find himself mired in the work of bureaucratic compliance.
Ultimately, this provision will slow job creation at a time that we should be doing everything possible to encourage and accelerate it.
Even the IRS' own National Taxpayer Advocate division cautioned that the federal tax agency would face significant challenges in processing and analyzing the enormous volume of 1099 forms.
In a report to Congress, the IRS predicted high incidences of improper penalty assessment resulting in wasted time and effort on the part of the agency and taxpayers alike.
Many business owners, rightly upset about the heavy burden of this excessive reporting requirement, have asked me what this tax provision has to do with health care. After all, the provision was slipped into the bill that proponents claimed would bring relief to small businesses struggling with rising health care costs.
As far as I can tell, this has nothing to do with health care Ã¯Â¿Â½ except that the federal government is looking high and low for revenue to pay for the $2.6 trillion dollar bill. The Congressional Budget Office reports the expanded 1099 requirement will generate $17 billion in tax revenue over 10 years. The rule, along with 17 other tax hikes written into the law, will together raise taxes in America by $500 billion over 10 years.
This onerous provision inside a heavy-handed health care law is another example of an overgrown government that is becoming too intrusive and too expensive. I cosponsored an amendment to repeal the 1099 provision, but it failed to pass.
I will work during the next Congress to reverse the effects of this disastrous bill.
We must work toward the right reforms. Reforms that will actually lower costs for patients Ã¯Â¿Â½ not raise them. Reforms that will strengthen small businesses Ã¯Â¿Â½ not stifle them.