New Form 1099 Rules For 2012

The IRS will implement new rules in 2012 that will likely affect most businesses.  Changes have been made to the reporting rules for IRS form 1099, the form used to report various types of income other than wages, salaries, and tips (for which Form W-2 is used instead).  This form generally applies to independent contractors and business suppliers, and does not affect those who are full-time employees.

The new regulations will require the issuance of 1099 forms for nearly all payments over $600 to a business’ suppliers, not just those payments made to independent contractors.  This includes items like commissions, fees, interest payments, and payment for property, such as construction or farm equipment.  A new question on Schedules E and F asks if any payments have been made in 2011 that would require taxpayers to file a Form 1099.  If the taxpayer can answer in the affirmative, a 1099 should be provided.

For most companies, these new regulations will signal the unwelcome requirement of issuing and reporting more 1099s.  Understanding that some business owners may need additional motivation for compliance, the new rules also double the penalty for failure to cooperate.  If a taxpayer negligently fails to file a 1099 form, they can receive a $100 fine per form; but if the IRS can prove that the taxpayer failed to file the forms through willful disregard of the filing requirements, then the fine is increased to $250 per form.  1099 forms should be received by service providers by January 31, 2012 and must be submitted to the IRS by February 28, 2012.

The new 1099 requirement is part of an effort by Congress to help pay for healthcare reform, as set forth under the Patient Protection and Affordable Care Act of 2010.  Earlier this year, a portion of this legislation was repealed, when its mandates were perceived as too onerous for many businesses to comply with.  The hope is that the new reporting requirements will serve to close the “tax gap,” or the difference between the amount of tax that taxpayers should pay and the amount that is actually paid voluntarily and on time, by ensuring that more income is disclosed to the IRS.  It is believed that those who may not have reported income from services rendered or good sold in the past because they assumed that the IRS had no way to discover the transaction may be compelled to report and pay taxes under the new regulations in the future.

If you are a Florida small business owner with questions or concerns regarding your tax reporting or payment obligations under local, state or federal law, contact an Attorney in Jacksonville who can help you find the answers today.

Finally, to all we wish a joyous holidays and a happy New Year!