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Financial Planning > Tax Planning

House Passes 1099 Fix Bill

By Arthur D. Postal

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WASHINGTON BUREAU — Members of the House today voted 314-112 to pass H.R. 4, a bill that would repeal the new, expanded Form 1099 tax reporting requirements created by the Patient Protection and Affordable Care Act.

The House 1099 fix also would repeal new tax reporting requirements aimed at owners of rental real estate.

The vote sets the stage for contentious talks with the Senate over how the 1099 reporting fix should be paid for.

The PPACA 1099 reporting provision would require businesses to file Form 1099 tax reports with the Internal Revenue Service (IRS) whenever they conduct more than $600 in transactions with a vendor in a given tax year.

Analysts estimate repealing the 1099 reporting provision could increase the federal debt by about $22 billion over 10 years.

PAY-FOR VS. PAY-FOR

The Senate 1099 fix legislation calls for paying for the fix by letting the federal Office of Management and Budget take away about $44 billion in discretionary budget authority from all departments and agencies except for the Defense Department, the Veterans Affairs Department and Social Security.

The House “pay for” would pay for 1099 provision repeal by having the IRS be more aggressive about getting excess PPACA health insurance purchase tax credits back from consumers who earn 400% to 500% of the federal poverty level.

The health insurance tax credit clawback provision would start to take effect in 2014 U.S. Capitol and 2015. Supporters cite projections showing the provision could reduce the federal budget deficit by $166 million between now and 2021.

House Democrats have called the change – which could start to take effect in 2014 and 2015 — a tax increase on the middle class. Obama administration officials have agreed in a policy statement released Tuesday.

White House officials say in the policy statement that the House pay-for “would undo an improvement enacted with nearly unanimous support in the Medicare and Medicaid Extenders Act that eliminated an egregious ‘cliff” in the tax system affecting middle income taxpayers.”

White House officials stopped short of saying President Obama would veto H.R. 4 if the House pay-for for wins Senate approval.

“HYPOCRITES!” VS. “IT’S A TAX!”

House Republicans have called the Democrats hypocritical, noting that the Democrats supported the same pay-for in December 2010, during debate on efforts to avert a 21% Medicare provider pay cut.

Rep. David Camp, R-Mich., chairman of the House Ways and Means Committee, today justified the pay-for during comments on the House floor.

“Under the better enforcement rules of H.R. 4, there will be some people who

decide not to buy coverage through the health insurance exchange,” Camp said, citing an analysis by the Joint Committee on Taxation.

Taxpayers who knew they were not really eligible for the tax credit would find taking the tax credit less attractive once they understand that they probably would have to pay the entire amount back to the government, Camp said.

“For example, under current law, a household making $105,000 might think it’s worth understating its income – or at least not updating their income information — in order to receive a $12,000 exchange subsidy because it would only have to pay back $3,000 if it got caught,” Camp said. “But the household is less likely to do so under H.R. 4, because it would have to pay back the entire subsidy, given that it wasn’t eligible for it in the first place.”

Rep. Sander Levin, D-Mich., the highest-ranking Democratic member of the House Ways and Means Committee, said the Republican approach to the health insurance tax credit clawback would take $25 billion additional dollars from middle class families.

“If this bill would become law, it would mean a tax increase for hundreds of thousands of middle-income taxpayers,” Levin said on the House floor. “Let me be clear by reading the language that’s in the bill. And I quote, ‘If the advance payments to a taxpayer exceed the credit allowed by this section, the tax imposed by this chapter for the taxable year shall be increased.’ In clear, simple English. So let no one stand up here and say, it’s not a tax increase when it is.”

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