Jan 29

In 2010 two laws revised the 1099 requirements  effective for payments made after 1/1/11 ( 2012 tax year)

The 2010 Small Business Act extends the 1099 requirement to all rental property owners. Prior to 1/1/2011 small rental property owners were exempted from the aw.  It appears very unlikely that this provision will be reverted.

The 2010 National Health Care Reform Act P.L. 111-148 (a.k.a. Obamacare) extended the 1099 requirement to all purchases of GOODS (previously the requirement applied only to services.) This bill also eliminates the exemption for if the party you paid was a corporation. An attempt to reverse this portion of the Health Care Bill in December failed, but now that evenPresident Obama is considering fixing parts of it, so it may change.

Do you use small Contractors in your business or to perform repairs?

If so the 1099s you file may cause the IRS and state taxing authorities to reclassify those “contractors” as “statutory employees.”  This can be hugely expensive with fines up to $5,000 per employee, requirements to pay both the employer and employee taxes as well as penalties and interest.  The IRS alone expects to collect $7 Billion a year in additional taxes due to this provision.

Today prudence requires you to act as though neither 2010 law will be repealed and get W-9s for all smaller providers of services and goods. Otherwise if the rules are not repealed and the provider is not inclined to give you their tax ID later, you will have problems.

Also if you are using small contractors you need to ascertain with confidence that they will not be subject to reclassification as statutory employees by the IRS or state revenue departments. This is the part of the whole 1099 revisions that will be a large trap for many landlords that do not use actual employees.

A brief overview of the statutory employee v. contractor issue: Basically if you pay them by the hour, or provide the supplies, or provide the tools, or tell them when or how to do the job; they are probably a statutory employee and you should have been doing withholding, unemployment insurance, workers comp, etc. The 1099s will help the IRS identify possible misclassifications. If they reclassify your “contractor” as an employee you will have to pay significant penalties as well as all the taxes that would have been withheld had they been an employee.

2 Responses to “2011 IRS Form 1099 Revisions”

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