Expanded Reporting Requirement Requires Business Owners to File IRS Form 1099s for All Payments to Vendors Over $600 Annually
Washington, D.C., May 25, 2010 – Many of the nation’s entrepreneurs are about to become more familiar with IRS Form 1099. According to a new law set to go into effect in 2012, business owners will be required to submit a Form 1099 for every payment made via check or credit card to vendors for services, inventory or property over $600 annually. A new survey by the National Association for the Self-Employed (NASE) found that the self-employed and micro-businesses (those with fewer than 10 employees) are overwhelmingly expecting this new regulatory burden to greatly or somewhat increase the amount they spend on tax preparation.
The Form 1099 reporting system has historically been utilized for payments made to independent contractors. According to NASE’s survey, micro-businesses reportedly received an average of four Form 1099s from clients or customers and issued an average of two Form 1099s to contractors in the most recent tax year. Under the new expanded regulation, small-business owners have estimated that they will have to issue roughly 27 Form 1099s, mostly to large corporations. This is a 1250% increase in the amount of paperwork that will be required of small-business owners come 2012.
“To the mom and pop shop, time is money, and this new regulation is going to require plenty of both,” remarked Kristie Arslan, NASE executive director (legislative offices). “The bottom line is that the Form 1099 expanded reporting requirement affects companies small and large, increasing the number of forms issued and received many times over.”
As part of the new expanded Form 1099 reporting requirement, businesses will be required to obtain accurate Taxpayer Identification Numbers (TINs) from all qualifying vendors. Should the business owner be unable to do so, they would be required to withhold a portion of that vendor payment and send it to the IRS. With over 40 percent of survey respondents still preparing their taxes on their own, this added administrative workload will significantly increase the time business owners spend on paperwork and/or force them to hire an accountant, adding to the cost of doing business in this difficult economic time.
Micro-businesses across the board were concerned about the implementation and consequences of this new reporting requirement:
Like most small business owners, I run a business that allows me to sell my expertise in a certain area. Unless that area is tax preparation, there's not a single small business that won't be adversely affected by this regulation. Small business owners and entrepreneurs know they have to devote a certain amount of time to administrative tasks, but the successful business is the one that keeps administrative items to a minimum, and spends the most time on clients and customer services. This is a ridiculous plan, and punitive against small business.
I have a hard enough time doing my taxes already. This will dramatically increase the time burden and cost. I may have to let go of an employee so I can instead pay an accounting service to handle my accounting and taxes.
I work as an accountant for small non-profits and small businesses. These reporting requirements will greatly increase the amount that they will need to pay for their accounting services.
Ridiculous! Get out of our way and let us do our jobs!
NASE is currently working to repeal this onerous regulation on the micro-business community. Rep. Daniel Lungren has introduced the Small Business Paperwork Mandate Elimination Act (H.R. 5141), which would repeal this expanded reporting requirement.
To view full survey results, visit the NASE Research page: /Research/NASESurveyResults.aspx.aspx
Methodology:
Posted on the NASE Web site and distributed to NASE’s membership via e-mail and association newsletters. The survey was available for members and other small business owners to take in May. Over 300 small business owners opted-in to the online survey and respondents were prohibited from taking it more than once.
Kristie Arslan is available for more information about the poll or micro-businesses. Please contact Kristin Oberlander by phone at 202-466-2100 or by email at koberlander@nase.org with additional questions or to schedule an interview.
About the NASE
The National Association for the Self-Employed (NASE) is the nation’s leading resource for the self-employed and micro-businesses, bringing a broad range of benefits to help entrepreneurs succeed and to drive the continued growth of this vital segment of the American economy. The NASE is a 501(c) (6) non-profit organization and provides big-business advantages to hundreds of thousands of micro-businesses across the United States. For more information, visit the association’s web site at www.nase.org