Senator Mike Johanns (R-NE) is promising to fight the increased 1099 reporting that was included in healthcare reform. According to the IRS’s own assessment of the new reporting requirements, the measure will result in tens of millions of additional 1099 forms being filed. The IRS says it will have to hire an unspecified number of new employees simply to keep up with the extra paperwork, and predicts that “it is highly likely that the IRS will improperly assess penalties that it must abate later, after great expenditure of taxpayer and IRS time and effort."

The new 1099 reporting requirement works like this. Beginning in 2012, companies will have to file IRS form 1099s for all vendors from which they purchase $600 or more in one year. Let’s say, for example, X-Company has a weekly pizza lunch from PizzaMan which costs $30 per week. X-Company would then have to file a 1099 related to PizzaMan, and PizzaMan would likewise have to file one for X-Company. The idea is that X-Company would have to have documentation of its business tax write-offs, instead of being able to just list $1,560 for pizza. Also, the idea is to try and catch PizzaMan understating its earnings. This is projected to raise $17.1 billion over 10 years.

The amount of additional paperwork will absolutely overwhelm small businesses, who will likely need to hire an employee just to deal with tax compliance, or will have to divert resources from expanding their businesses and their workforces, and instead contract with an outside agency in order to remain in compliance with the IRS. In addition, if the IRS’s own prediction of improper penalties is true, this will not affect only the “taxpayer and IRS,” but will take money away from small businesses who don’t always have the extra capital to hold them over until the government fixes their mistakes.

Senator Johanns said he will propose an amendment to repeal the 1099 reporting requirement, and will attempt to attach it to every piece of legislation that comes through his chamber. We applaud his efforts, and encourage you to contact Senator Johanns to ask him to keep up the fight. You can contact Senator Johanns through his website, or become a FEN member and use our "contact your elected officials" feature.