Small-business owners fear 1099 paperwork ‘burdens' in health law

For her Norcross business, Access Computers Inc., Pat Kaemmerling regularly shops for office supplies at Costco, buying everything from copy paper, pens and three-ring binders to toilet paper and garbage bags.

Her purchases at the store add up to more than $600 a year, and that, she said, is going to be a real problem for her unless something changes in Washington.

The problem is a provision in the new federal health care law that as of 2012 will require businesses to file 1099 tax forms for purchases of goods and services of more than $600 from any single vendor during the year.

Kaemmerling and other small-business owners say if the law goes into effect, it will cost them time, money or both.

The change is a major expansion of current reporting requirements. The government's goal is to unearth billions of dollars in tax revenue that might otherwise go unpaid by vendors, and use the money to help cover part of the cost of the health care plan.

A concerted effort by small businesses to repeal the provision is set to hit Congress on Tuesday. The U.S. Senate is scheduled to consider two amendments. One would eliminate the 1099 requirement. The other would modify it, exempting businesses with fewer than 25 workers, raising the reporting threshold to purchases above $5,000, and excluding purchases made with a credit card.

U.S. Sens. Saxby Chambliss and Johnny Isakson of Georgia are co-sponsors of the legislation to repeal.

Kaemmerling said she will have to set up a separate account for each vendor and do the work herself, which would be time-consuming, or outsource it to an accountant, which would prove costly.

"It's one more nail in the coffin," said Kaemmerling, who has owned the computer supplies and services business with her husband, David, for 21 years. "All the government does is make our jobs more difficult with all their rules and restrictions."

The Kaemmerlings’ company has eight employees.

Particularly troubling, she said, is that government leaders often say small-business development is the key to job creation and the linchpin in an economic turnaround. But regulations like the 1099 requirement make it that much harder to prosper and add workers, small-business owners and advocates said.

"What we are hearing from our members is that the 1099 [requirement] creates tremendous new paperwork compliance burdens," said David Raynor, Georgia state director of the National Federation of Independent Business, which represents 300,000 businesses nationally and 9,000 in Georgia.

About 85 percent of those members, he said, have 25 employees or fewer, and those companies stand to be the most affected by the requirement because they can't afford the staffing to handle the reporting in-house.

Just how much the additional tax work would cost depends on the size of the business and its number of vendors, Raynor said.

David Martinez, co-owner of Bartow Powersports, a motorcycle dealership in Cartersville, has done some estimating of his potential costs. He now pays $300 monthly for outsourced accounting services to make sure there are no mistakes in his books that could cost him penalties and interest. He figures that sum will increase to about $1,000 a month if the new requirements stick.

That's the kind of extra cost that can keep a $2 million-in-sales-a-year business like his from growing. As it is, he said, his industry has been in a recession for years, margins are thin, and he's not taking a paycheck himself. The company has eight employees.

Business owners see the additional reporting requirement as largely redundant. Kaemmerling said that a vendor such as Costco records all its sales, which are reported as income. She said her company makes its purchases with an American Express card and that she records those in her books.