Senate Nixes 1099 Requirement, Obama's Signature Is Next

April 05, 2011

April 5, 2011 — Following the lead of the House, the Senate today voted 87 to 12 to eliminate an onerous tax-reporting duty in the new healthcare reform law.

The repeal measure now goes to President Barack Obama, who has signaled that he will sign it.

The Affordable Care Act (ACA) requires all businesses, beginning in 2012, to file federal tax form 1099 if they buy $600 or more worth of goods or services in a given year from any vendor. Similar to Congress, Obama has decried the paperwork requirement as too burdensome. In the past, however, the president and Congress have wrangled about how to make up the roughly $20 billion in revenue that the government will lose if the 1099 provision is repealed.

Before passage of the ACA in early 2010, businesses needed to file a 1099 with the Internal Revenue Service only for services provided by unincorporated vendors, such as sole proprietors. The ACA expands that reporting duty to include goods as well as services, and all vendors, including incorporated ones. Congressional Democrats added this provision to the ACA to help pay for healthcare reform, thinking that it would identify previously unreported and untaxed vendor revenue.

The business community, as well as organized medicine, has vehemently objected to the new requirement, saying it will it cost them too much in time and money. A medical practice, for example, would need to file a 1099 for a $600 printer that it bought from Office Depot.

Funding Mechanism Said Not to Interfere With Latest Doc Fix

Democratic efforts last year to erase the 1099 provision from the ACA without making up the lost revenue floundered in the face of GOP budget hawks in Congress. Then in February, the Democrat-controlled Senate offered a "pay-for" when it passed a repeal in the form of an amendment to a Federal Aviation Administration bill. The measure called for the White House Office of Management and Budget to make $44 billion worth of unspecified budget cuts — more than enough to offset the cost of repeal. The White House opposed that approach, saying the deep cuts could seriously disrupt government services.

The Republican-controlled House voted March 3 to repeal the 1099 provision, but included an entirely different pay-for. In the House's version, lost revenue would be offset by increasing the amount that the government could collect from individuals who receive more in tax credits for purchasing health insurance under the ACA than they are entitled to.

The repeal measure approved by the Senate today stipulates the same tax-credit "clawback" found in the House bill. The new formula for collecting excessive tax credits is complicated, and the complexity is compounded by a bill that Congress passed in December 2010 to delay a 25% reduction in Medicare rates for physicians from January 1, 2011, to January 1, 2012. To offset the roughly $19 billion cost of this "doc fix," Congress turned to the fine print in the ACA on collecting overpayments from those receiving health insurance subsidies. That pay-for also allows the government to collect more than the law originally specified, but not as much as the latest 1099 repeal does.

The pay-for in the 1099 repeal passed by the Senate today does not divert any federal funds from the 12-month Medicare doc fix, according to a spokesperson for Sen. Mike Johanns (R-NE), who sponsored the repeal measure.

Although Senate and House Democrats alike have lent support to a 1099 repeal that pays for itself with a tax credit clawback, the Obama administration initially did not. It stated earlier this year that the House's 1099 repeal would eliminate improvements in the handling of excess ACA tax credits that the doc fix bill put in place.

Immediately after the Senate vote today, the White House issued a statement suggesting that Obama would sign the repeal into law.

"We are pleased Congress has acted to correct a flaw that placed an unnecessary bookkeeping burden on small businesses," the White House stated. "As we move forward, we look forward to improving the tax credit policy in this legislation to ensure we protect small businesses and middle-class families."


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