On April 5, the 87-12 vote by the Senate approved H.R. 4, the "Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011." The measure, which retroactively repeals expanded Form 1099 information reporting rules added by recent legislation, was passed on March 3rd by the House on a vote of 314-112. Thus, H.R. 4 (the Act) will be forwarded for the President's expected signature.
Technical highlights of the tax changes in the Act:
Original information reporting rules (prior to 2011) - Before amendment by the Small Business Jobs Act of 2010 and the Patient Protection and Affordable Care Act (PPACA), Internal Revenue Code (IRC) Sec. 6041 generally required payments totaling at least $600 in a single calendar year to a single recipient to be reported to IRS. Reporting on Form 1099 was required only when the payor was considered to be engaged in a trade or business and made the payment in connection with that trade or business. The type of payment that most commonly triggered the reporting requirement was payment for services. Corporations were exempt from Code Sec. 6041 's reporting requirements under prior law (Reg. § 1.6041-3(p)(1)).
Changes made by 2010 legislation. Beginning in 2012, Sec. 9006 of PPACA made three significant changes; (1) it added payments of amounts for ANY type of property to the list of payments subject to information reporting.
(2) corporations, which had previously been exempt from the reporting requirement, would now be subject to information reporting.
(3) The Small Business Jobs Act of 2010 provided that, subject to limited exceptions, a person receiving rental income from real estate would be treated as engaged in the trade or business of renting property for information reporting purposes. Landlords making payments of $600 or more to a service provider, such as a painter or plumber, in the course of earning rental income would have to provide an information return to the service provider and IRS.
New law. For payments made after Dec. 31, 2011, H.R. 4 (the Act) repeals each of the three above provisions. (Code Sec. 6041(a), Code Sec. 6041(i), and Code Sec. 6041(j), as amended by Act Sec. 2, and Code Sec. 6041(h), as repealed by Act Sec. 3).
Author’s observation: In other words, under the Act, the information reporting rules effectively revert to the way they read before enactment of PPACA and the Small Business Jobs Act of 2010.
Revenue offset. In order to gain bipartisan approval, congress needed to find a revenue offset to make up for the anticipated revenue that would be lost by repealing the 1099 reporting requirements. The Act provides an offset, estimated at $21.9 billion. It increases the amount of "excess advance payments" of the premium assistance credit (enacted as part of the 2010 health care reform legislation to help lower-income individuals acquire affordable health insurance coverage) that a taxpayer must repay under Code Sec. 36B(f)(2) for tax years ending after Dec. 31, 2013. The credit is available for a taxpayer who doesn't receive health insurance through his employer (or his spouse's employer) and whose income falls between 100% and 400% of the federal poverty line (FPL), based on the most recently filed tax return.
Under pre-Act law, if the taxpayer's income increases such that the credit exceeds that to which his current income level actually entitles him to, but his income is still under 500% of FPL, he had to repay some credit amounts. The limit on amounts he had to repay were capped and ranged from $600 to $3,500.
New law. Under the Act, for tax years ending after Dec. 31, 2013, the repayment caps are increased for taxpayers with household income of at least 200% but less than 400% of FPL, and full repayment is required for taxpayers whose incomes exceed 400% of FPL. (Code Sec. 36B(f)(2)(B)(i), as amended by Act Sec. 4)
