Section in Health-care law puts serious accounting strain on small businesses

During the heat of the debate over heath care reform, House Speaker Nancy Pelosi famously told the American people, “we have to pass the bill so that you can find out what is in it.” It seems that small businesses are now doing just that, focusing in on a mandate that will raise business expenses and bury them in paperwork.

Beginning in 2012, Section 9006 of the Patient Protection and Affordable Care Act will require small businesses to submit Form 1099s for every business transaction over $600 for products and services. This includes everything from office supplies to shipping costs to cleaning services and the like.

The National Taxpayer Advocate reports that the provision will affect 40 million businesses, charities, and government agencies, including 26 million sole proprietorships.

There are currently dual bills with the same name –“Small Business Paperwork Mandate Elimination Act” — pending in the House and Senate which would repeal Section 9006, thereby eliminating the cumbersome mandate.

On the House side, California Republican Rep. Dan Lungren is sponsoring H.R. 5141 along with 125 co-sponsors, including 3 Democrats. On the Senate side, Nebraska Republican Mike Johanns is sponsoring S. 3578 along with 18 co-sponsors, all Republican.

“We have been trying from the very beginning to entice Democrats.” Lungren told The Daily Caller. My office personally talked to every Democrat office who voted against the health care bill and every single “Blue Dog” Democrat.

In an emailed statement to TheDC, Johanns said that he is working hard fighting for the interests of American small businesses.

“Small businesses are fired-up about the impractical, burdensome and unnecessary new paperwork mandate,” he said. “I spoke at a conference today where hundreds gathered in person and via the Internet to object to this and other anti-business provisions in the new health care law. These small businesses are already drowning in paperwork and forcing them each to file literally hundreds more 1099s is the last thing they need as they try to grow and hire workers.”

According to Johanns, small businesses currently have an average of ten Form 1099 filings a year. This new provision will push that average up to 200 filings annually, a 2,000 percent increase.

Bill Rys, tax council for the National Federation of Independent Business, told TheDC that the massive amounts of new paperwork will be an impediment to productivity. “In the midst of this debate of how we are remaking the health care system, we have this tax provision which has absolutely nothing to do with health care but is a huge new burden.”

He said that the IRS will be inundated with a tremendous amount of new paperwork.

“The question is how exactly the IRS is going to deal with all this enormous flood of new information and what exactly they are going to do with it,” he remarked.

Rys continued, “Talking about Senator Johanns and Congressman Lungren’s bill, it really is the only solution to solving this problem. We really need to be working on how to make the tax code more workable for small businesses and individuals and not add these new impediments…This is an attempt to close the tax gap, or the amount of money the government is owed but doesn’t collect and unfortunately the burden is going to fall on compliant taxpayers”

The Joint Committee on Taxation estimates that the provision will raise $17 billion over the next ten years.