Healthcare Law Includes Tax Credit, Form 1099 Requirement

Two federal tax pieces of the healthcare reform legislation passed last month are already having an impact on business—a small-business tax credit and additional 1099 reporting.

The Internal Revenue Service (IRS) is mailing postcards to small businesses about the healthcare tax credit, which is available beginning this year. The credit is available to small employers with less than 25 full-time workers who are offering health insurance coverage for the first time or maintaining coverage they already have. The credit is available to small employers that pay at least half the cost of single coverage for their employees. A qualifying employer also must pay average annual wages below $50,000.

The credit is worth up to 35 percent of a small business’ premium costs starting in 2010. On January 1, 2014, this rate increases to 50 percent. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers. For more information on the tax credit, click here.

Another provision to the bill requires by 2012 every business to issue a Form 1099 to any vendor of services or property to which the business has paid more than $600. Form 1099 is also sent to the IRS. In addition to issuing the forms, a business will have to get Taxpayer Identification Numbers (TINs) from all of its vendors and withhold payments to them until it receives the TIN. Penalties apply if the business fails to issue the forms.

Under the existing law, businesses issued the Form 1099 only to individuals who provided services to a business. The healthcare law included the same form be issued to corporations as well, and that the form be issued to individuals and corporations that provide property to the business. Businesses will be required to issue the Form 1099 to most of their vendors.

Rep. Daniel Lungren (R-CA) has introduced legislation to repeal this requirement. PPAI supports this bill, H.R. 5141, the Small Business Paperwork Mandate Elimination Act.

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