Get Ready for Extreme 1099 Reporting

5/13/2010

By Mark Corey, CPA

If you thought the various 1099 reporting rules created a burden for your business, wait until 2012. One of the under-reported provisions of the new massive Health Care overhaul is a change in the way 1099s will be reported to the government.

The predominant 1099 reporting rule involves providing an information return (1099) to any payee with whom you make payments totaling $600 or more for the year in the course of your trade or business. Generally, payments for goods, or payments to corporations, exempt organizations, government entities, international organizations and retirement plans were exempt from reporting.

Under the new rule, an information return is required for all payments of $600 or more to a payee in a calendar year, except to tax-exempt corporations. Payments included in this new rule are for goods and are required for non tax-exempt corporations. Depending on your business, the requirement to report the purchase of more than $600 of goods from one payee, and to report purchases to corporations could easily double or triple the volume of 1099s you are required to issue.

Why is this a big deal? How many times have you bought a new piece of equipment, office furniture or taken a large group to lunch? With the new rules, there may be a 1099 reporting requirement. If you buy the latest computer or software, then you must be ready to track that payment and issue a 1099 to the store. If you need a new couch for your reception area – prepare that 1099. That annual trip to the fancy restaurant to celebrate a milestone for your employees – you guessed it, a 1099 will be required.

Because the government has not done away with the penalties for reporting errors or omissions, most organizations will need to update their accounting software or processes in order capture the data required to prepare all of these additional 1099s. Currently, there are penalties for failure to file information returns (IRC 6721 - $50 for each return not filed with a $250,000 maximum per year), failure to furnish payee statement (IRC 6722 - $50 for each correct statement not provided with a $100,000 maximum per year) and failure to comply with other reporting requirements (IRC 6723 - $50 for each non-timely complied with reporting requirement).

There is still time to work on your accounting systems as these new 1099 reporting rules do not go into effect until 2012. But do not ignore these new rules because the financial penalties can be severe. The IRS is sure to remind you of these penalties if you are subject to audit and you have not properly complied with these new rules.