Form 1099 Reporting Changes
Gary J. Hoff
Department of Agricultural and Consumer Economics
University of Illinois
Most farmers understand the reporting requirements for Form 1099-MISC, Miscellaneous Income. However, they may not realize the Patient Protection and Affordable Care Act of 2010 (PPACA) has dramatically increased the number of Forms 1099-MISC they will be required to file each year. If you are not familiar with the PPACA, it is the official name of the Health Care bill. You may wonder why is a health care bill causing me to file more 1099s? The answer is revenue. The Treasury department estimates this provision will produce $17.1 billion of revenue over ten years.
Current law requires that 1099-MISC forms be issued to anyone that is paid $600 or more for services rendered. There is an exception for services provided by corporations. PPACA makes two major changes. The first is that corporations are no longer excluded. The second is that the 1099MISC must also be furnished for property purchased. “Property” includes all inputs a farmer purchases for his operation such as feed, fuel, fertilizer, chemicals, supplies, medications, and parts. In addition, the $600 threshold is cumulative. Therefore, if you pay a vendor $400 for supplies today and next month you pay him $300, you must provide a 1099-MISC at yearend. This means you will need to refine your recordkeeping system to track the total amount you pay each vendor.
The National Taxpayer Advocate estimates the new law will affect two million farming businesses as well as 26 million non-farm sole proprietorships, three million partnerships, four million S corporations, and two million C corporations.
In addition to the time and expense of accumulating data and preparing the 1099-MISC, you must also:
- Obtain the official name, address, and taxpayer identification number (TIN) of each vendor;
- Withhold 28% backup withholding on any vendor that fails to provide a TIN;
- File Form 945, Annual Return of Withholding Federal Income Tax, when you send the backup withholding to the IRS;
- Exclude any refunds or returned merchandise from the amount reported; and
- File the 1099s electronically if you have over 250 vendors.
The change to the 1099 regulations will also impose new problems on the IRS:
- The new information mandated by PPACA will not be conclusive. The match on the vendor’s return will not be perfect because sales under $600 are not reported.
- Sales may be duplicated because of the requirement to report credit card sales.
- The information reported on the 1099-MISC may be erroneous, resulting in the IRS notifying the business about unreported income. This will create added time and expense to the business as it investigates the issue and responds to the IRS.
- It will be difficult for the IRS to determine if a taxpayer has reported all of the required 1099-MISC forms.
The good news about the 1099*MISC filing is that it does not begin until 2012. Consequently, taxpayers have two years to prepare. The second piece of good news is that the IRS is requesting comments on the filing requirement. These comments must be received by the IRS by September 29, 2010. You should mail your concerns to:
P. O. Box 7604
Ben Franklin Station
Washington, D.C. 20044