The 411 on new 1099-MISC tax rules for freelancers
Not many headlines stop me in my tracks, but this one from CNNMoney.com Small Business did. (WARNING: You might want to swig some Peptol-Bismol before visiting the link.)
Health care law’s massive, hidden tax change
Currently, we’re all familiar with receiving 1099s at tax time; you’re also supposed to follow up with any client who owes you one. For those of us who hire other freelancers or legal services in excess of $600, you need to send 1099s to them, too. No big deal, it’s part of being in business for yourself.
But the new healthcare law slides a pair of nasty little requirements into your accounting for 2012 and beyond. You’ll now need to:
- Track not just services over $600, but tangible goods you purchase, and
- Send 1099s not just to individuals, but to corporations.
So, spend more than $599 and you’re going to send a 1099-MISC Apple or Dell, after researching their federal tax information. Same with GoDaddy, Staples, Costco, Verizon, Exxon and so on. Regardless of whether you are thrilled or horrified at the healthcare law, there’s no question this will add significantly to your accounting workload. (And you might want to stock up on stamps.) Naturally, our friends in D.C. are saying it’s for our own good, because it will aid in tax compliance to help pay for the new benefits.
Philosophically, I take issue with that concept, or at least with the execution. I pay my taxes willingly, but the process already consumes more than its fair share of my time and energy. $600 is an awfully low threshold nowadays, and this puts a burden on the people least equipped to handle it, in order to “police” scofflaws. I suspect it is laying the foundation for a VAT tax in our near future.
I also suspect it will create more unwitting criminals through tax bureaucracy. This opinion from a respected registered investment adviser, “1099 Mandate from Hell Slipped into Health Bill,” concludes: “Clearly this is insanity. If enacted, it will be the most widely ignored IRS regulation in history.” Time will tell.
New Freelance-Zone contributor Jake Poinier is the founder/owner of Boomvang Creative Group, the newly launched advice blog for freelancers, Dear Dr. Freelance, and a ruminator on assorted business topics at Jake’s Take.
[...] first post, “The 411 on new 1099-MISC tax rules for freelancers,” dives into some changes in IRS reporting requirements, courtesy of the new healthcare law. The [...]
This is confusing, the other article I read in the Times implied tangible goods were not included. Sending a 1099 to Verizon seems like throwing a pebble in the proverbial black hole. I agree that this is a rule that will be ignored by quite a few freelancers.
Jonathan, thanks for your comment. I have seen other articles with different spins as well. The truth is, no one knows for sure what it will ultimately include or won’t include with regard to 1099s. As the law is currently written, it would add significantly to small business bookkeeping requirements—and your analogy of pebble-into-black hole is an apt one on the receiving end!
That said, you may take heart in the fact that the IRS will issue Regs and have public hearings at some point next year. TaxGirl, an expert on such things, is hopeful that the more onerous provisions will be stricken. If you’re interested, you can read more at this link:
http://www.taxgirl.com/new-rules-about-forms-1099-are-causing-a-stir/
Thanks again for commenting!