Every business person goes through a certain right of passage every January as they fill out 1099-MISC forms for the year. Most don’t realize there is a 1099 disaster coming down the line. 

New Years is an absolute blast for the vast majority of people. Alas, it is also the official end of the holiday season and the beginning of the tax season proper. The first step most businesses must take is to track, total up and report all yearly payments of more than $600 to independent contractors for the previous year. This is, of course, done through form 1099-MISC. 

The 1099 form is known as an information return. No money is submitted with it. Instead, it is merely used by the IRS to track the total reported revenues for a party. If this money is more than the figure reported by the business on its tax return, red lights go off and an audit occurs. 

The healthcare reform that was passed earlier this year was controversial to say the least. Whatever side you come down on, you surely aren’t aware of a provision that was added to it that creates a 1099 nightmare for businesses. It is a nightmare that could result in your business having to file 10 to 100 times as many 1099s as you do now. 

The issue is a clause that changes the law on 1099 reporting. Businesses that are currently excluded from the requirement no longer are with the change. For instance, you do not have to 1099 corporations under current law. This will change under the new law. In fact, you will have to 1099 practically anyone or company you pay more than $600 to during your fiscal year. 

To understand what a nightmare this will be, consider some examples. Let’s say you ring up more than $600 in phone bills during the year. You will need to 1099 your phone company! What if you go down to BestBuy and purchase an $800 computer? Yes, you will have to 1099 the company. Most of us pay our payroll service more than $600 a year. Yes, we will all have to 1099 them. Buy more than $600 worth of stamps a year? Yep… The list is nearly endless and you can see what a huge burden it will become for every business. 

How did this happen as part of the healthcare reform act? Politics. No bill is what it seems because “riders” are attached that absolutely have nothing to do with the stated purpose of the bill. In this case, the rider has created a 1099 disaster. Fortunately, the new law doesn’t kick in till 2012.