Member Advocacy Spotlight: How 1099 Reporting Requirements Harm Businesses

To build upon our membership outreach initiatives, we’re introducing our Member Advocacy Spotlight, posting a unique outlook on how policy-related issues affect industry.  We’ll highlight a specific member and what they believe a certain law or policy might mean for their business.

By keeping an open dialogue about what can be done in Washington, D.C., to improve our industry, we’re working with members to help get that accomplished.

This post tackles how the 1099 reporting requirement will harm business.  Beginning in 2012, any business that pays a single vendor for goods or services valued at $600 or more must provide that vendor with a Form 1099, and this Form 1099 also must be provided to the IRS. This provision was included in the Healthcare Reform Act of 2010. CompTIA supports a repeal of the 1099 Reporting Requirement as it creates an undue burden for small businesses. 

PC SOS provides on-site IT services throughout the United States, utilizing local 1099 contractors. It specializes in remote area coverage for other service providers. In areas where it is not economically feasible for a national provider or VAR to place a W2 employee, individuals contract PC SOS to cover those areas on an "as needed" basis.

Tom Bozeman, owner and president of PC SOS, says that a majority of the subcontractors performing services for PC SOS are incorporated, but there are a significant number who are not. Consequently, his company submits between 150 and 250 1099s annually.

“If the new 1099 bill is enacted, it will triple the number of 1099s that we’re required to submit. The cost associated with collecting the W9s and submitting the 1099 information also will triple. This is simply a cost I can’t afford during these difficult economic times. My business finally stabilized from the economic down turn. We finally see some new business on the horizon, but any foreseen growth will be countered by this ridiculous new bill,” adds Bozeman.

“In addition to the increased number of filings, the government has also DOUBLED the penalty for errors from $50 per error to $100 per error. Contractors are required to prove attempts to obtain corrected information on W9s. Two B Notices must be mailed, filed and provided to the IRS before any penalty will be excused. My submissions will triple.  Plus there are a number of companies who have never been required to submit 1099s, but will under the new bill. The workload could multiply by four or five times over the current regulation,” Bozeman noted.

“Due to the economy I was forced to lay off four employees at the end of 2009. I no longer had the business to support them. My own state, Texas, raised my unemployment tax 858 percent. (That is not a misprint, eight hundred and fifty-eight percent.) The Texas Workforce Commission merely followed the formula that is law. I have been in conversation with my state representative who agrees that this law is wrong,” Bozeman said.

“With all these disruptions, when does a small business have time to grow their business?” Bozman asks.

At CompTIA, we’re committed to advocating on behalf of members in Washington, D.C., and are working on a full repeal of the 1099 requirement. On January 2, the Senate voted to began the process of repealing the 1099 report requirement, which is giant step in the right direction. If members continue to keep their voices heard, the House of Representatives soon will follow suit.

If you have any questions about this issue or would like to make a submission for the next Member Advocacy Spotlight, contact Matthew L. Evans.