While the repeal of the heath care bill as a whole failed to pass yesterday (all the Democrats voted against the repeal/all Republicans voted for repeal), a separate amendment to the bill (S.AMDT.9) passed easily with an 81-17 margin.

The primary purpose to this amendment was to repeal the portion of the bill that expanded the 1099 reporting requirements to a level that would have easily crippled many businesses – especially hitting smaller businesses hard. Generally speaking, without the repeal, the current 1099 rules would have expanded to include payments made to corporations and payments made for tangible goods. Think of all of the Corporations that you deal with on a daily basis – like Wal-mart, Staple’s, Harris Teeter (or other grocer). All of these would have required a 1099 if you paid them more than $600 in the year. There are also a lot of details that I won’t go into because now that it is repealed, it is a mute point. Just be happy as a small business owner that you don’t have to do this! It would have been really expensive and/or time consuming to administer.

I can’t imagine why any Senator would vote against the repeal of this provision in its current state. It is over reaching and cumbersome. It would have been nearly impossible for the average business to fully conform to the law. It would have been a nightmare to enforce. And at the end of the day, it accomplished nothing in its current state. There would have been tons of double reporting and the numbers reported to the IRS would mean less than the ones they get now. Nonetheless, these 17 Senators voted against the repeal:

Akaka (D-HI)

Carper (D-DE)

Durbin (D-IL)

Franken (D-MN)

Gillibrand (D-NY)

Harkin (D-IA)

Inouye (D-HI)

Lautenberg (D-NJ)

Leahy (D-VT)

Levin (D-MI)

Mikulski (D-MD)

Murray (D-WA)

Reed (D-RI)

Reid (D-NV)

Sanders (I-VT)

Schumer (D-NY)

Whitehouse (D-RI)

As far as the Health Care Act as a whole, many Senators, including South Carolina’s own Lindsey Graham, have vowed to continue their fight to repeal the bill – in whole or in part. Along with Senator John Barrasso of Wyoming, Senator Graham introduced The State Health Care Choice Act that would allow states to ‘opt-out’ of Obamacare. This is far from passage and as you might imagine it will be a long and hard fight before there is closure on the Obamacare issue.

All businesses make payments to vendors. But are you required to report these payments to the IRS? It depends on who you are making payments to and the amount being paid during the year.

Various types of Forms 1099 must be provided to certain type of payees by January 31, and to the IRS by February 28. Here’s a rundown of some of the more common payments that may require an information return.

• Payments of $600 or more to contractors or other services providers (other than corporations) must be reported to the recipient and to the IRS on Form 1099-MISC.
• Payments to attorneys for business-related services must be reported to the attorney and to the IRS. These payments must be reported on Form 1099-MISC regardless of the amount and regardless of whether the attorney is incorporated or not.
• Rents totaling more than $600 paid to an individual landlord, partnership, or estate (but not rents paid to a corporation) must be reported on Form 1099-MISC. (However, rents paid to a real estate agent are generally not required to be reported.)

These forms must be mailed to the recipient by January 31 and to the IRS by February 28.

Bear in mind that the penalties for failure to comply with these information-reporting requirements can be stiff. For example, you can be hit with a penalty as high as $100 for each return that is filed incorrectly or is not filed on time and deductions on tax returns may be disallowed in audits.

I think it is time for a little lesson on 1099′s for everyone.  Forgive my rant, but every year people start begging for their 1099′s in early January.  They say they “need their 1099 to file their taxes.”  This is simply untrue and tells me that many of them are probably cheating on their taxes.

A 1099-MISC form is issued to a person or unincorporated entity that is paid more than $600 in the calendar year.  If they pay you less than $600, the payor does not have to issue a 1099-MISC but that does not mean it is not income to the receiving party.  The purpose of the 1099 is to notify the IRS that this person should be claiming the income and paying taxes on it.  The IRS then matches this amount reported to the proper return and if it is not reported, the IRS sends out a lovely balance due notice.  Are these individuals that “have” to have a 1099 in order to do their taxes excluding the income from the ten vendors that paid them $500 each that were not required to send a 1099?

Independent contractors are self-employed are businesses whether they know it or not.  Just like any other business, they should keep a proper set of books and records to substantiate their income and expenses.  They are also eligible to deduct qualifying expenses against the income before paying taxes on it.

With electronic filing being done for most returns today, no statements like W2s have to be submitted to the IRS with the returns.  Even with paper filing, you only attach statements showing how much was withheld and remitted to the IRS.  1099s do not normally have withholding so they are not required and never have been required to be submitted to the IRS.

So when I hear someone asking for their 1099, I hear a business owner saying “I do not keep books and records.  I do not keep up with my business as a business.” and “I plan to only claim the income that is sent to the IRS.”  This is a recipe for pure trouble and is the reason the IRS scrutinizes self-employed filers so much.  The truth is that this one the highest concentration of tax cheating that exists in our tax system today.

Do yourself a favor.  If you are a business owner, require all potential 1099 vendors to complete the form W-9 from the IRS before they receive any payments from you.  If they are planning to cheat on their taxes, remember that they may not always be the best vendor for you.  Have a backup!

While the exact line the determines who is an employee and who is an independent contractor is not always understood by everyone, there are some clear test that regulatory authorities use to determine if you are classifying people correctly.

Many employers would rather classify people as independent contractors because they are able to save significant employment taxes on these employees. In addition, they do not have to provide many other benefits that a typical employer would normally offer.

Regulatory authorities typically rely on three main test to determine the classification of a worker: (1) Behavioral control, (2) Financial Control, and (3) the Type of Relationship.

To find out more about what the regulatory agencies look at to make sure employers are following the rules, read our full article in the RedWolf Payroll Knowledge Base.