Another Obamacare Surprise... "The Rat Tax"
Why is this provision being coined "The Rat Tax" ? Because it requires companies to "Rat" to the IRS on the companies they do business with. Beginning in 2012, under the new law, businesses will be required to issue form 1099 to every business, for virtually all purchases.
Changes to the tax code’s section 6041 regarding 1099 reporting were slipped into the 2000-page health legislation. The changes will force millions of businesses to issue hundreds of millions, perhaps billions, of additional IRS Form 1099s every year.
In a recent summary, tax information firm RIA [1] notes the types of transactions covered by the new 1099 rules:
The 2010 Health Care Act adds “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2)) to the pre-2010 Health Care Act categories of payments for which an information return to IRS will be required if the $600 aggregate payment threshold is met in a tax year for any one payee. Thus, Congress says that for payments made after 2011, the term “payments” includes gross proceeds paid in consideration for property or services.
Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity, within in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s. When a business buys $601 of office supplies from Staples, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small business owner pays his material suppliers, he will have to send a 1099 to the supplier and IRS.
Recipients of the vast flood of these forms will have to match them with existing accounting records. There will be huge numbers of errors and mismatches, which will probably generate many costly battles with the IRS.
This is a huge new imposition on American business, costing the private economy much more than any additional tax that the IRS might collect as a result. What the HECK does this have to do with HEALTHCARE!
In order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold federal income tax on your payments.
This will most certainly become an administrative and bureaucratic nightmare. No doubt it will waste huge amounts of human effort in filling out forms, reworking computer systems, collecting and organizing data, and fighting the IRS. Just the thing our struggling economy needs. If your not irate yet, what will it take?
