Money & Finance

Congress Plays Chicken Over Paying For 1099 Fix

Taxes - Money and Flag

CNN Money | Neil deMouse

There's one legislative issue lawmakers on both sides of the aisle overwhelmingly agree on: The onerous 1099 tax-reporting mandate that snuck into the health-care reform bill has to be repealed.

The Republicans promised to eliminate it in their Pledge to America, and President Obama did the same in his State of the Union address. So nearly one year after its passage, why isn't the law dead yet?

Money. Congress can't undo the looming 1099 tax mess without finding $2 billion a year to offset the government revenue the wildly unpopular provision is expected to generate.

Starting in 2012, the new regulations require any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services in one tax year. That's a massive expansion in the role of the 1099 tax form, which is currently used only to document non-wage income for individual workers. The IRS' National Taxpayer Advocate estimates that this change will affect 40 million taxpayers, creating a compliance burden that could be "disproportionate as compared with any resulting improvement in tax compliance."

Translation: This is a paperwork-intensive tax nightmare. And it might have unintended consequences. Critics of the provision are concerned that it could prompt businesses to consolidate their purchases with a few large vendors in order to cut down on their paperwork, making it harder for small businesses to compete.

The 1099 expansion is universally reviled among both business groups and in Washington: There's rare bipartisan agreement that including it in the health-care bill was a mistake.

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