A highly overlooked aspect of the health care reform, Patient Protection and Affordable Care Act, is the expanded 1099-MISC reporting requirements. The 1099-MISC reporting is being expanded in two different ways. The first expansion requires businesses to include payments made to corporations, and the second expands reporting to include payments of property.  The definition of “property” is still unclear, but IRS Commissioner Douglas Shulman recently made reference to “goods” instead of property which would suggest the IRS is looking at using a larger, more comprehensive definition.

This increased reporting requirement being placed on all businesses seems to be substantially burdensome in my opinion. How many businesses in this country will have to send 1099s to companies such as their local office supply store, and how many office supply stores want to receive potentially hundreds of thousands of 1099s from their customers? Businesses of all sizes will be required to report hundreds of 1099-MISC reports for any individual or corporation for which it pays $600 or more to in the year. Currently the requirement only applies to payments made to individuals, which makes sense, since individuals have the higher risk of not fully reporting income.  However, businesses already have reason to fully report their income to offset expenses and show owners and investors a return on their investment, not to mention potential SEC requirements and the fear of audits.

The AICPA, American Institute of Certified Public Accountants, is currently trying to influence Congress to repeal this section of the new health care law. If we are lucky, Congress will see the problems with this section and repeal it, however businesses in the mean time should review their systems to begin preparing for additional reporting burdens coming in 2012.

The expanded 1099 reporting provision of the PPACA has been repealed as of April 14, 2011. For additional information please proceed to our recent post: Two Provisions of Health Care Reform Recently Repealed.

Over the last couple of weeks two separate provisions of the Health Care Reform Act (PPACA) have been repealed. 

On April 14, 2011, the first provision of the PPACA to be repealed was the onerous expansion of 1099 reporting. This provision would have made it mandatory for businesses to significantly expand their reporting of 1099s to any vendor they pay $600 or more for goods and services. As we reported in an earlier blog, this would have increased administrative costs for all businesses immensely.  The repeal of this provision was expected from the inception of the PPACA.

The second repealed provision, which came as a pleasant surprise, is the “free choice voucher” program. The repeal was finalized on April 15, 2011 as part of the Fiscal Year 2011 Spending Plan. The voucher provision would have required employers to offer “free choice vouchers” to employees who chose not to enroll in the employer’s health plan, and would be used to purchase health coverage through one of the state “Exchanges” created by the PPACA.

Employer groups argued that vouchers would contribute to “adverse selection” to their group health plans. They explained that vouchers could encourage healthy employees to waive coverage under the group plan in favor of purchasing cheaper coverage through an Exchange. The remaining employees in the group plan would be less healthy or be in a classification, such as age, that would cause the premium cost of the group plan to increase. Additional concerns were voiced by employers over the increased burden and cost to administer the free choice vouchers. The vouchers were to be given only to employees with household income below 400% of the federal poverty level and whose required contribution for the group coverage would have been between 8% and 9.8% of their total household income.

Recently, the Labor Department announced that they would be getting more aggressive on businesses that improperly pay workers.  In an effort to ensure employees receive all monies due to them, the Labor Department has signed agreements with several states and the Internal Revenue Service to share information unilaterally regarding businesses that improperly classify their employees as independent contractors when they are actually employees.  Some factors that may indicate an employment relationship could include:  the person is directed by you, they are paid an hourly wage, they receive training, they use your tools and supplies and they are required to work when scheduled.  Alternatively, an independent contractor is in business for themselves, has other clients, is able to direct themselves and does the job when scheduling works best for them and they can complete the project. 

To learn if you are compliant regarding the person you have hired, ask yourself: 
1. Do I pay my "employee" using a 1099?
2. Did I review the "IRS 20 factor test"?

If you answered yes to either of the above questions, you may be out of compliance. The IRS no longer uses what used to be called the "IRS 20 factor test". In its place, they now offer an essay style questionnaire in which your responses are submitted for their review. Improper classification of employees can result in large fines from multiple agencies.  As just one example, in August we reported that the Colorado Department of Labor and Employment had submitted a draft proposed rule to establish fines associated with employee misclassification.  If approved, The CDLE will fine first offenders 5% of each misclassified employees annual gross wages or $100, whichever is greater. Repeat offenders will be fined 25% of each misclassified employees annual gross wages or $500, whichever is greater. Do you really want to start a conversation with the IRS?

StaffScapes can help you determine the proper classification and avoid penalties from the IRS. Why not work with a local partner to ensure you are compliant?  StaffScapes is a full-service Human Resource and payroll company that helps small businesses with important tasks such as:
 

• Human Resources
• Workers' Compensation
• Employee Relations
• Unemployment
• Benefits
• Risk Management
• Payroll
 

For more information, please contact Jim Thibodeau at 303-466-7864 or info@StaffScapes.com.