A 1099 Nightmare

Press Release

Small businesses are the lifeblood of our economy--they create nearly seven out of every ten jobs in our great nation. During the current economic recession, however, small businesses have encountered numerous obstacles to continued job creation. From the lack of liquidity in the marketplace, to the new government health care mandates, to new and excessive regulations, the government has created an unfriendly business atmosphere that has forced many small businesses to downsize and has hampered them from hiring new employees.

In addition to these impediments, the Democrat-controlled Congress and Obama administration have enacted a costly government-run health care system that is expected to exceed $2.6 trillion once the bill's provisions are fully implemented. One of the health care overhaul's most ridiculous new requirements dictates an enormous tax reporting burden on small businesses. While this provision has nothing to do with health care, a new reporting requirement was added to the bill to generate revenue to help cover the cost of this enormous bill.

Specifically, this new mandate -- buried in Section 9006 of the government-run health care law -- requires business owners to submit a separate 1099 reporting form for every single business-to-business transaction that totals more than $600 in a given year.

Under current law, businesses must report to the Internal Revenue Service (IRS) services performed by non-corporate entities, such as independent contractors, by filling out a 1099 form. However, the health care bill vastly expands that requirement by extending it to corporate vendors and by mandating reporting for goods and gross revenues.

Simply put, this means small business owners will have to provide 1099 forms for basic businesses expenses, including phone and internet service, shipping costs, and office supplies. This will substantially increase the price of doing business in an economic environment that is already challenging enough. It also means that employers will have to track down the taxpayer identification number of each vendor and may be responsible for withholding payments from the vendor if requested by the IRS.

In July, the IRS's National Taxpayer Advocate highlighted several problems with the 1099 mandate. Specifically, the IRS found that the new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance. In addition, small businesses may have to acquire new software or pay for additional accounting services, incurring additional costs.

What is worse, these excessive reporting requirements are likely to change the way companies select their vendors. Businesses will think twice before purchasing services from several smaller vendors because of massive reporting requirements. This could force small vendors to shut their doors or consolidate, thereby leaving the economy with more large national vendors and less local competition.

To remedy this issue, I have cosponsored legislation that would repeal the 1099 reporting requirements. Small businesses are already facing a hostile business environment and the government should not be adding to their troubles.

Rep. Gary Miller represents California's 42nd Congressional District.

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