This is the thirteenth in a series of articles about health care reform.
The Patient Protection and Affordable Care Act of 2010 (the Act) amended Section 6041 of the Internal Revenue Code to expand the types of payees and payments that must be reported by business taxpayers beginning in 2012. Under the Act, a business taxpayer would have been required to file a 1099 form for each payee (other than a tax exempt corporation) to which it made payments for property or services aggregating $600 or more in a calendar year. This expanded compliance requirement would have applied to business-to-business payments to all supply vendors whether incorporated or not (i.e., Walmart, Target, Kinkos, Office Max, gas stations, etc.). Under the Act, the penalties for failure to file information returns would increase from $15 to $30 per return to a maximum of $250,000 per year for large employers ($75,000 for smaller employers).
The expanded reporting was intended to generate increased federal revenues by expanding the reporting compliance by small business taxpayers, many of whom operate as S corporations and were thought to be underreporting income.
In response to intense lobbying by the AICPA, the U.S. Chamber of Commerce and other business trade groups, Congress passed the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (H.R. 4) which was signed into law by President Obama on April 14, 2011. The lobbying groups insisted that implementation of this part of the Act would have created a significant and costly burden on small businesses to track and report these payments. At the signing, President Obama announced that “Today, I was pleased to take another step to relieve unnecessary burdens on small businesses by signing H.R. 4 into law.”
The same legislation repealing this portion of the Affordable Care Act also repealed an additional 1099 expansion that was part of the Small Business Jobs Act which changed the Tax Code to consider persons receiving rental income as “in a trade or business” for purposes of 1099 reporting. The April 2011 legislation repeals Code Section 6041(h) such that individuals receiving rental income are not automatically deemed to be in a trade or business requiring 1099 reporting (e.g., persons holding rental real estate solely as an investment). Property management companies and others that are in the trade or business of renting real property will continue to have 1099 reporting obligations.
With the repeal of the law, the 1099 reporting rules remain unchanged from the rules in effect for 2010. To offset the presumed loss in additional revenues which would have been generated by the expanded reporting requirements, H.R. 4 changes the recapture provisions for individuals receiving advance premium assistance credits. These credits were included in the Act, and essentially advance part of the cost of health insurance purchased through an exchange to the insurer for certain individuals whose income is between 100% and 400% of the federal poverty level. Individuals who are later determined to be ineligible for those credits, or eligible only for a lesser credit based on their household income, must repay the shortfall according to the new schedule described in H.R. 4.