Health Care Bill Requires 1099 for Goods, Not Just Services

A provision in the health care reform law could significantly increase tax recordkeeping requirements and costs for the  self-employed, small businesses and charities, the IRS' national taxpayer advocate said Wednesday in her annual report.

The report expresses concern that a new reporting requirement in the Patient Protection and Affordable Care says that beginning in 2012, all businesses, tax-exempt organizations and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they purchase goods totaling $600 or more during a calendar year. 

To meet this requirement, these businesses and entities will have to keep track of all purchases they make by vendor.  For example, if a self-employed individual makes numerous small purchases from an office supply store during a calendar year that total at least $600, the individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases.

Businesses currently are required to provide Form 1099s for services, such as payments to independent contractors, but not for goods.

According to an analysis of 2009 IRS data, about 40 million businesses and other entities will be subject to the new requirement, including roughly 26 million non-farm sole proprietorships, 4 million S corporations, 2 million C corporations, 3 million partnerships, 2 million farming businesses, one million charities and other tax-exempt organizations, and more than 100,000 government entities.