No 1099-K Line on 2012 Business Returns

It is now appearing that the IRS may be reversing the requirement for businesses to report separately on their tax returns, income that is received through merchant services, such as credit cards and Paypal, and reported on Form 1099-K.

Last October, the IRS had said that no return entry would be required for 2011 tax returns, although they left a line on tax returns saying “For 2011, enter 0.”  They had implied that the reporting requirement would begin in 2012.  However, Steven T. Miller, IRS deputy commissioner for services and enforcement, said in writing to the National Federation of Independent Business that no reconciliation will be required on 2012 or future business tax returns.

We have advised our clients to be accounting for this income separately beginning in 2012, but it now appears that this may be unnecessary.

Worker Classification Becoming Major Tax Administration Issue

Between the recent voluntary classification settlement program introduced by the Internal Revenue Service, a memorandum of understanding between the IRS and the Department of Labor to share employment tax data, and the president’s proposed economic growth plan, misclassification of workers and independent contractors has been receiving a lot of attention in Washington.

Additionally, as previously reported on our blog here, the State of California has enacted new reporting requirements as well as new fines and penalties for failure to comply.

Learn more about the latest issues related to worker classification issues in this Tax Advisor article.

California New Worker/Vendor Reporting

California businesses are required to report to the Employment Development Department (EDD) new employees and independent contractors who receive $600 or more during the year.

The EDD requires that employers report the new employee(s) on Form DE 34 – Report of New Employees(s) within 20 days of hire.  There is no compensation floor in reporting the new employees(s).  Employees only need to be reported once.

The EDD also requires reporting for independent contractors hired by the business.  When a contract is established for over $600 with an independent contractor or they are paid over $600, EDD Form DE-542, Report of Independent Contractors must be completed and filed.  The independent contractors must be reported each year within 20 days of making the payment or entering into the contract.

The EDD can impose a penalty of $24 for each failure to timely report a contractor.

We suggest that each business report contactors they believe will reach the $600 total when preparing their annual 1099’s in January.  There is no penalty for reporting a contractor who later never receives over $600 in payments.

Both forms can be completed online at https://eddservices.edd.ca.gov/index.html.

If you have any questions regarding filing either or these forms, please contact our office.

Congress Passes 3% Withholding Repeal & Hiring Incentives

Congress this week passed legislation repealing a provision that would have required federal, state and local governments to withhold 3% of any payments over $10,000 from government contractors and certain other vendors. The provision was intended to combat tax avoidance, but critics argued that it would restrict the cash flow of businesses and was too costly to implement.

In addition to repealing the withholding requirement related to government contractors, the 3% Withholding Repeal and Job Creation Act:

• Expands tax incentives to encourage employers to hire veterans;
• Expands the IRS’s continuous levy authority;
• Extends the authority of the US Department of Veterans to obtain information from the IRS; and
• Directs the Treasury Department to prepare a report on how to reduce the tax gap attributable to federal contractors.

To pay for the $12.8 billion cost of the 3% withholding repeal and expanded hiring incentives for veterans, the legislation adjusts the calculation of the modified adjusted gross income for determining eligibility for certain federal health care programs. It also delays scheduled reductions in fees for VA mortgage applications.

Senate Approves 3% Government Contractor Withholding Repeal, Sends Bill Back to House

On Thursday, the Senate approved a bill that would repeal the required 3% income tax withholding on vendor payments by federal, state, and local governments. The Senate version of the bill also contains a new tax credit for employers who hire certain unemployed veterans. The bill now goes back to the House, which approved a different version in October

Repeal of 3% Contractor Withholding Goes to Vote

The Senate is set to vote Thursday on repeal of the 3% withholding rule for government contract payments and an amendment that would provide credits of $2,400 to $4,800 to businesses that hire unemployed veterans. The amendment, which also would extend the "Wounded Warriors" tax credit for two years, is expected to pass.

Read more at this article: The Hill/On the Money Blog.

Expanded 1099 Requirements Officially Repealed

Via The Journal of Accountancy

After a long drawn-out period of seemingly unanimous criticism of the expanded 1099 reporting requirement put into law as part of the health care reform bill, on April 14th, President Obama signed into legislation which repealed the requirement.

For a year now, we have been tracking this issue which seemed to be overreaching, and would result in a huge new administrative burden to our clients.  For a history of the issue, you can read our previous posts here.

Expanded 1099 Filing Requirement Repeal Passes Senate

Via Journal of Accountancy

On Tuesday, the Senate voted 87-12 in favor of repealing both recently enacted expanded Form 1099 information reporting requirements. The bill now goes to the president for his signature. The repeal is paid for by changing how excess advance payments of certain health care credits are taxed.

To learn all about the expanded 1099 filing requirements enacted by last year’s health care reform legislation, please see our blog articles and links on the topic here.

Senate Votes to Repeal 1099 Reporting Requirement

The Senate has approved a measure that would repeal the expanded Form 1099 reporting requirements that were part of the health care law from last year. 

http://www.accountingtoday.com/news/Senate-Passes-1099-Repeal-Amendment-57177-1.html

The Latest 1099 News

As we have previously detailed in various stories here, due to the recently passed health care reform law, 1099 requirements are set to become extremely onerous on all businesses, and even some unsuspecting individuals.  Taxpayer grumblings have been heard, and there is a lot of activity brewing to at least tame the upcoming requirements a bit.  We thought we would give you a quick run down of where things stand.

– As detailed in our story here, starting in 2012, all payments from businesses totaling over $600 are required to be reported on a 1099.  That is, on January 31st, 2012, for 2011 payments.  The big change is that corporations must now receive 1099’s, and payments for purchases of goods, and not just services, must now be reported.

– The recently enacted Small Business Jobs Act contained a provision requiring property owners who receive rental income, to issue Forms 1099 to service providers.

– According to Webcpa, one of the originators of this law is now introducing legislation that would repeal the new 1099 requirements.

– The American Institute of Certified Public Accountants have asked for a repeal of the the new 1099 requirements.  In this letter to the US House of Representatives, dated November 16, 2010, the AICPA has written to provide lawmakers with the accounting industries view of the impact of the new 1099 rules.

We will continue to monitor these rules and keep you informed.

Update: In an open letter to small businesses, the head of the US Small Business Administration has called for the repeal of the new 1099 requirements.   Learn more here.

12/2/10 Update: This week, an effort to repeal this unpopular 1099 filing requirement failed to pass in the Senate.  The Senate was twice unable to get the 67 votes needed to repeal the provision.  However, Senate Finance Chairman Max Baucus said Monday that he and Sen. Mike Johanns have agreed to work out a compromise to repeal the 1099 provision.  We will continue to post updates here.