Friday, April 8, 2011

Congress votes to repeal health reform law’s 1099 reporting requirement

The Senate passed, by a vote of 87 to 12, H.R. 4, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011. The bill, already passed by the U.S. House of Representatives, repeals Form 1099 reporting requirements included in the Patient Protection and Affordable Care Act (ACA). This is the first amendment to the ACA since its passage in March 2010.

The ACA revised the reporting requirements so that all businesses would have to file a Form 1099 to identify vendors to whom they pay $600 or more in a year. Although the additional reporting was intended to improve tax compliance, Congress acknowledged that the administrative burden on small businesses merited repeal. Repeal of expanded business information reporting is certain to reduce the burden on taxpayers, especially on small businesses.

Specifically, H.R. 4 repeals the ACA reporting changes to Sec. 6041 of the Internal Revenue Code, which provide rules for payments to corporations, provide additional regulatory authority, and impose a reporting requirement with respect to gross proceeds from property. The repeal is effective for payments made after December 31, 2011, which is the effective date of the original ACA provision.

President Barack Obama is expected to sign the bill into law. According to a statement released by Obama's press secretary, "We are pleased Congress has acted to correct a flaw that placed an unnecessary bookkeeping burden on small businesses. Small businesses are the engine of our economy, and eliminating the 1099 reporting requirement is the right thing to do.... And the Administration remains eager to work with anyone with ideas about how we can make health care better or more affordable for all Americans."

Impact of repealing ACA's 1099 reporting rule. Repeal of the ACA’s 1099 reporting rule means that the pre-ACA 1099 reporting rules for business payments continue unchanged. In particular, businesses must continue to issue Form 1099s for payments of $600 or more to service providers. Additionally, repeal means that the long-standing exception to required information reporting for payments made to corporations remains intact.

Paying for the ACA's 1099 repeal. The reporting requirement was expected to increase federal revenues by as much as $21.5 billion over the next ten years. To offset this loss in revenue, H.R. 4 pays for the repeal by requiring certain taxpayers to repay some or all of the health insurance tax credits they otherwise would be eligible for starting in 2014 under the ACA.

Under the 2010 health reform law, beginning in 2014, taxpayers who purchase qualified health care coverage through an American Health Benefit Exchange are entitled to a refundable income tax credit equal to the health insurance premium assistance credit. Generally, the credit is available to taxpayers (individuals or families) with household income between 100 percent and 400 percent of the federal poverty level (FPL). If the advance payments exceed the allowable credit, the excess is an increase to the taxpayer’s taxes for the year. However, ACA limits the increase in taxes to a maximum $400 (or $250 for unmarried taxpayers) for individuals with family income below 400 percent of the FPL for the family size involved.

H.R. 4 would increase the amount of the excess credit that has to be repaid by the taxpayer, by providing an increasing cap based on household income. Under the new law, the amount of the credit is based on an individual's estimated income, and the repayment would vary from $600 to $2,500, for married taxpayers. For unmarried taxpayers, the caps would be 50 percent of the specified amounts: $300, $750, and $1,250.


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