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Published 12/1/2010
Lauren Bates

Changing the 1099 provisions in PPACA

Even when all agree, making changes is difficult

The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148) includes many controversial provisions. Revising or repealing some of those provisions may be difficult, despite the results of the November election. Even when both Republicans and Democrats agree that a provision has onerous, unintended consequences, finding a solution may be challenging.

One example is the new 1099 information reporting requirements for businesses. Although many businesses are already familiar with the Internal Revenue Service’s (IRS) requirements to issue a 1099 form and report payments totaling at least $600 to another individual in a single year, PPACA expands this requirement significantly.

Beginning Jan. 1, 2012, businesses will have to file a 1099 form with the IRS if the total amount of payments made to for-profit businesses or corporations for goods or services equals $600 or more in a year. In addition, the types of payments that can trigger the reporting requirement have been expanded.

Why the change?
The new reporting requirements are intended to reduce the tax gap, which is the difference between the amount of taxes legally owed and the amount of taxes voluntarily paid by businesses. In 2001, the IRS estimated that the gross tax gap was $345 billion; closing this gap is seen as a way to increase the federal government’s revenue and offset the costs of the healthcare reform law.

Opponents of this provision state that the revenue generated (estimated at $17 billion to $19 billion) does not justify the increased burden on businesses, particularly small businesses. In addition, those opposed to the measure point out that some of the accounting methods used by corporations will mean that these efforts may not actually help to close the tax gap, even with the new information reported to the IRS.

Proponents state that small businesses are already subject to reporting requirements for payments for goods and services and claim that any new costs would be “marginal” and decrease over time.

What will change take?
Several legislative proposals for repealing or modifying the PPACA 1099 provision have already been introduced. Sen. Mike Johanns (R-NE) and Rep. Dan Lungren (R-CA) have introduced the Small Business Paperwork Mandate Elimination Act (S. 3578/H.R.5141) to repeal the 1099 provision.

Sen. Johanns had also offered a version of this legislation as an amendment to H.R. 5297, the Small Business Jobs Act. In addition, Sen. Bill Nelson (D-FL) offered an amendment that would have exempted businesses with fewer than 25 employees from the requirement and raised the reporting threshold to $5,000 for companies. Both amendments subsequently failed on procedural motions, serving as another reminder of the challenges ahead. However, President Obama has indicated that he is willing to work with Congress in the next session to address this issue.

Given the intricate nature of the PPACA, any attempts to modify or repeal sections of the law, such as the 1099 provision, will likely be difficult, although not impossible. Many members of Congress have pledged to work to repeal flawed portions of the new law. The battle over the 1099 provision serves as an example of how larger battles on other controversial provisions, such as the Independent Payment Advisory Board, may play out in the next Congress.

Although the impact on physicians may vary by practice, the battle over the 1099 provision sets the tone for future repeal arguments. Any changes to the PPACA will likely turn into a referendum on the new healthcare law, causing further gridlock in Congress. The American Association of Orthopaedic Surgeons will continue to use all its resources to effectively advocate for orthopaedic surgeons and their patients.

Sample 1099 form (PDF)

Lauren Bates is a government relations specialist in the AAOS office of government relations. She can be reached at bates@aaos.org