Small businesses are discovering a little-known provision in President Obama’s health care law may exponentially increase the amount of paperwork they have to submit to the Internal Revenue Service (IRS) every year.
Section 9006 of the Patient Protection and Affordable Care Act dramatically expands 1099 tax reporting requirements, which could effectively put U.S. small businesses at a distinct disadvantage to larger businesses. It will force companies, starting in 2012, to submit to the IRS a 1099 tax form each time they spend a total of $600 on anything—even items such as office supplies, contracting work, or buying a new computer.
Without the financial and personnel resources needed to cope with the avalanche of 1099 paperwork now required, small businesses may have to pay for significant new compliance costs.
Joe Antos, a health care policy expert at the American Enterprise Institute in Washington, DC, says Section 9006 could create serious problems for small businesses.
“The new 1099 requirement changes are a complete disaster. Virtually all firms are used to submitting 1099s above $600—that is no big deal—but what they are not used to is keeping track of every single business transaction in the name of Obamacare,” Antos said. “This is going to result in reams of new paperwork.”
Antos says the new 1099 requirements will not generate much revenue but will damage small businesses in America as a “nuisance requirement.”
“This is going to have a very low revenue effect but a very significant effect on businesses,” Antos said. “The recordkeeping department will now have to track everyone down to properly fill out the requisite forms, and with the amount of lost productivity time, all companies here are going to suffer.”
Expected to Kill Jobs
Bill Rhys, a spokesman for the National Federation of Independent Businesses, believes Section 9006 will lead to job losses.
“Section 9006 will have the opposite effect on jobs and productivity that we want,” Rhys said. “This is purely a revenue provision, an attempt to bring down the Congressional Budget Office’s score of the total cost of Obamacare.”
Ed Haislmaier, a health care researcher at the Heritage Foundation, likewise doubts Section 9006 will bring in needed revenue.
“The idea behind this section was eliminating the places where Americans are receiving income that is not getting reported to the IRS,” Haislmaier said. “But I am skeptical [about it] actually increasing revenues, as are most tax-policy watchers. In its application, Section 9006 is just a paperwork nightmare.”
Rhys says many companies not previously required to keep track of this information will have to find a way to pay for new costs.
“Currently companies only provide 1099 tax forms to the IRS if they are an unincorporated businesses, a sole proprietorship, or a partnership, and if they provide services in excess of $600. That has changed now because now 1099 reporting requirements will also apply to incorporated, c-corp, and s-corp businesses—so basically all businesses in America are now covered by this requirement,” Rhys said.
Push for Repeal Initiated
Chris Edwards, a tax policy analyst at the Cato Institute, says Section 9006’s ill effects will result in a strong push from small businesses to repeal the new requirements.
“This provision of Obamacare will make us all poorer because businesses will be spending more time with paperwork and adjusting their computer programs, fighting with the IRS,” Edwards said. “There are going to be so many disparities between what records match up with what records. Small businesses do not need this, and the economy does not need this.”
Edwards notes Rep. Dan Lungren (R-CA) has introduced a bill to repeal Section 9006. As of this writing, Lungren’s HR 5141 currently has 67 cosponsors.
“Section 9006 should be the highest priority for repeal of any aspect of Obamacare. This provision is going to be enormously unpopular come January 2012, and many, many businesses have no idea what is coming down the road,” Edwards said.
Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.