New 1099 Reporting Requirements
Like many business owners, I’m sure you already find yourself looking for time in your schedule to keep up with the paperwork and filing requirements mandated by governmental authorities. With a lagging economy, homebuyer credits, health care reform and an estimated “tax gap” in the United States of $300 billion each year, Congress has been looking for revenue raisers without actually raising tax rates. May I introduce to you the new Form 1099-K and the extensively expanded reporting requirements of Form 1099-MISC.
The Housing Assistance Tax Act signed into law by President George W. Bush in July 2008 created the new Form 1099-K. While many celebrated the law’s provision for the first-time homebuyer credit, the new 1099-K reporting requirement received little attention at the time.
Effective for payments received in 2011 and thereafter, credit/debit card payment processors will be required to file Form 1099-K which will report the gross amount paid to the merchant during the calendar year. However, Form 1099-K will not be required when a merchant has less than 200 payment transactions a year totaling $20,000 or less. Comments made by IRS Commissioner Douglas H. Shulman and reported in IR-2010-68 on May 27, 2010 indicated that credit/debit card sales would be segregated from cash sales on the business’ tax return. In light of this reporting requirement, businesses should take appropriate measures to be sure their financial records will produce the required information for the preparation of their income tax returns.
Prior to the signing of the Patient Protection and Affordable Care Act in March 2010, payments to corporations were generally exempt from the Form 1099-MISC filing requirement as was the reporting of the purchase of goods. Starting in 2012, business payments to a single entity of $600 or more, including corporations and payments for the purchase of goods, will be required to be reported on Form 1099-MISC.
This change in the law will significantly increase the forms required to be filed by each business. Do you spend $600 or more at Office Depot? You’ll need to get their employer identification number so you can send them Form 1099-MISC. Do you spend $600 or more with American Airlines? Same deal.
IRS Commissioner Shulman has stated that IRS will look for opportunities to minimize the reporting burden and avoid duplicative reporting. He said, “We plan to use our administrative authority to exempt from this new requirement business transactions conducted using payment cards such as credit and debit cards. These transactions will already be covered by reporting requirements on payment card processors, so there is no need for businesses to report them as well. So, whenever a business uses a credit or debit card, there will be no new burden under the new law.” While this is not a complete implementation plan, it is one IRS consideration to minimize the reporting burden.
As you can see, the requirements will massively increase the number of Forms 1099-MISC to be filed. Each business should take steps now to implement measures to facilitate these new reporting requirements. Failure to comply with these requirements may result in the imposition of penalties, which may include a penalty for failure to file the information return; a penalty for failure to furnish payee statements; or failure to comply with other various reporting requirements.
We at EGP, PLLC are closely monitoring the situation and new developments in this area. We also understand that these reporting requirements can be overwhelming and want you to know that we stand ready to assist you in complying with the new law. If you have any questions or need assistance, please contact Angela Frazier, CPA at (501) 374-2910 or afrazier@egpcpas.com.
