Unpopular IRS filing requirement sparks multiple repeal proposals

A provision of health care reform legislation that's stuck in the craw of many workers' comp insurers, as well as other small businesses, is the subject of new congressional proposals. Calls to repeal the new 1099 reporting requirements are being heard yet again in the halls of Congress.

Section 9066 of the Patient Protection and Affordable Care Act stipulates that starting in 2012, businesses must send the IRS a 1099 form for every vendor or service provider with which they have had at least $600 in total aggregate transactions during the year. Currently, businesses must file only for expenses paid to unincorporated entities. The new law would cover everyday expenditures, such as office supplies and phones.

"Starting Jan. 1, organizations would have to collect taxpayer ID information and anytime the total aggregate payment to a taxpayer exceeds $600 for the year, they'd have to send a 1099," said Julie Gackenbach, principal at Confrere Strategies LLC, in Washington, D.C. "In workers' comp, for anybody that a carrier pays -- a therapist or physician -- they'll have to send them all a 1099. So, for example, if Julie treats 17 people you insure that year, you'll have to have a way to aggregate the payments to me and send me a 1099."

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Several months ago, political observers in D.C. were all but certain the stipulation would be quickly repealed. But the problem has been how to make up for the estimated $17 billion to $19 billion that would be generated by the provision.

With the start of the new Congress came new proposals to repeal 1099. Once again, the issue is how to offset the billions in lost revenue.

A bill introduced by Sens. Mike Johanns, R-Neb., and Joe Manchin, D-W.Va., authorizes the Office of Management and Budget to identify unobligated federal funds to cover the cost of repeal. Calling it a "senseless, wrong-headed mandate," Johanns said he needed only a few more senators to sign on as cosponsors to make the legislation a "done deal."

In the House, Rep. Dan Lungren, R-Calif., reintroduced legislation to repeal what he called "an onerous provision of Obamacare." Lungren said his proposal, The Small Business Paperwork Mandate Elimination Act, had the support of 245 House members.

Yet another proposal from Rep. Bill Owens, D-N.Y., includes a tax increase. It would impose a 5.4 percent surcharge on adjusted gross income of more than $1 million annually for joint filers and $800,000 for individual filers.

And Senate Finance Committee Chairman Max Baucus, D-Mont.,the author of the original provision, along with Senate Majority Leader Harry Reid, D-Nev.,on Jan. 25 introduced legislation to repeal the requirement.S. 72, cosponsored by 17 senatorsdoes not include an offset and ideas on how to pay for the $19 billion repeal are still being discussed.

President Obama even raised the issue in his State of Union as an example of provisions in the health care bill that could be improved or eliminated. Congress is expected to act quickly on repeal or substantial modification as soon as the budget offset issues are resolved.

If none of these or other proposals succeed, companies would need to start sending out and filing 1099s -- unless payments are made by credit cards rather than check. Gackenbach explains the provision does not require reporting for those payments.

"I think there will be a lot of pressure by providers to pay via electronic payment so they don't get all these 1099s," she said. "Companies will probably look to see if there is a different payment system they can use."

Read more at the WorkersComp Forum homepage.

February 10, 2011

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