1099 tax-reporting measure a go despite efforts to stop it

Sep 15, 2010

The U.S. Senate this week defeated efforts to eliminate a controversial tax-reporting provision from the Patient Protection and Affordable Care Act that will require dentists and other small businesses to report purchases of more than $600 per year to the Internal Revenue Service (IRS).

But a separate small business aid bill approved by the Senate today could offset the impact of the new 1099 reporting requirements by opening up lending for small businesses and reducing taxes on small businesses.

On September 14, the Senate failed to pass an amendment by Sen. Mike Johanns (R-NE) that would have saved businesses and nonprofit groups from having to report an array of small and medium-sized purchases to the IRS, according to a story in the Hill.

“Dentists are good citizens, and they pay their taxes.”
— Mike Graham, ADA managing director
of government affairs

An alternative to Johann's amendment sponsored by Sen. Bill Nelson (D-FL) also failed. It would have increased the reporting threshold to $5,000 and eliminated the requirement for businesses with fewer than 25 employees.

The provision, which was included in the healthcare reform legislation signed by U.S. President Barack Obama in March, is estimated to raise $17 billion over 10 years to pay for a new public healthcare fund, according to the story.

Currently, businesses issue 1099-MISC forms for payments for services purchased from individual persons such as independent contractors. The new provision requires 1099 reporting to the IRS of payments for goods and services to individuals and corporations if the total annual payments to a given vendor exceed $600. It would take effect in 2012.

A nine-member coalition of dental organizations, including the ADA and the Academy of General Dentistry, has been lobbying to repeal the provision, which significantly expands the situations in which businesses are required to file 1099 tax forms. Business groups have argued the new requirements impose a heavy cost on small businesses and will harm the economy.

"The change would have a significant adverse effect on many dental practices," the coalition stated in a June 21 letter sent to legislators. "As small businesses, very few dental practices have the staff resources to absorb the extra workload required to meet the new mandate."

For example, tracking payments for services to certain individuals and for services and goods purchased from all individuals and corporations with annual payments of $600 or more would require a dentist to collect the name and taxpayer identification number of virtually every supplier. "Dental practices would have to absorb the administrative costs or pass the expenditures along to patients, unnecessarily increasing dental costs at a time of overall rising healthcare costs," the coalition noted.

"We believe the requirement is onerous and unnecessary," Mike Graham, managing director of government affairs for the ADA, told DrBicuspid.com. "Dentists are good citizens, and they pay their taxes."

Another bill pending

Graham is hopeful that another bill, which has been introduced by Sen. Mary Landrieu (D-LA), will help mitigate the tax-reporting provision. It is similar to Nelson's amendment and would raise the reporting threshold from $600 to $5,000 per year.

"We look forward to seeing some action on Sen. Landrieu's bill before the election," Graham said.

Dentistry is responsible for more than $200 billion in annual economic activity, the ADA noted in a letter sent August 31 to Nelson in support of his amendment.

The proposed amendment to strip the 1099 tax-reporting provision would have delayed passage of the small-business aid bill that the Senate approved September 16, legislators said. The measure is designed to open up credit to small businesses and award them with other incentives to expand and hire new workers, according to an Associated Press (AP) story.

The measure would establish a $30 billion government fund to help open up lending for credit-starved small businesses, cut their taxes, and boost Small Business Administration loan programs, the AP reported.