New 1099 Regulations Will Hit Small Firms Hard

As a freelancer, I'm all too familiar with Form 1099, a tax form generally used by firms to pay independent contractors.

According to a new law set to go into effect in 2012, business owners will be required to submit a Form 1099 for every payment made via check or credit card to vendors for services, inventory or property over $600 annually.

A National Association for the Self-Employed survey found that the self-employed and firms with fewer than 10 employees are expecting this new regulatory burden to greatly or somewhat increase the amount they spend on tax preparation.

According to NASE’s survey, micro-businesses reportedly received an average of four 1099s from clients or customers and issued an average of two Form 1099s to contractors in the most recent tax year. 

Small-business owners have estimated that they will have to issue roughly 27 Form 1099s, mostly to large corporations, thanks to the new regulations. This is a 1250 percent increase in the amount of paperwork that will be required of small-business owners come 2012.

“To the mom and pop shop, time is money, and this new regulation is going to require plenty of both,” said Kristie Arslan, NASE executive director of legislative offices. “The bottom line is that the Form 1099 expanded reporting requirement affects companies small and large, increasing the number of forms issued and received many times over.”

As part of the new expanded Form 1099 reporting requirement, businesses will be required to obtain accurate Taxpayer Identification Numbers from all qualifying vendors. Should the business owner be unable to do so, they would be required to withhold a portion of that vendor payment and send it to the IRS. With over 40 percent of survey respondents still preparing their taxes on their own, this added administrative workload will significantly increase the time business owners spend on paperwork and/or force them to hire an accountant, adding to the cost of doing business in this difficult economic time, according to the NASE.