Small businesses fear that they may face expensive new payroll paperwork requirements as part of little-known tax provisions in President Obama's healthcare overhaul.
Starting in 2012, the law would require all businesses to file special forms with the Internal Revenue Service not just for freelancers who work for them, as in the past, but also for stores, vendors and anybody else from whom they buy more than $600 in goods or services over the course of a year.
The new tax provisions were intended to help collect from businesses and individuals who do not report all of their income, said Michael Mundaca, assistant secretary for tax policy at the Treasury Department. The Congressional Budget Office has said the measures would raise $17 billion in additional tax revenue over a 10-year period.
The Treasury Department has promised to consider the concerns of small businesses before implementing the law, but small-business owners and their advocates in Washington are skeptical, saying the act goes too far.
When the law goes into effect, businesses will be required to file IRS form 1099 for any vendor with whom they exceed the $600 threshold — even large corporations that already report their income to the tax agency. Under current rules, businesses don't have to file the paperwork if their vendor is a corporation or if it sells products rather than services.
Business owners say these requirements would drown them in paperwork and increase costs for bookkeeping, accounting and even postage.
Richard Moreno, an Oak Park accountant who specializes in small businesses, said companies would spend hours complying with the new rules and in many cases would have to hire outside accountants.
"Are we talking about an hour a year? Two hours? Six hours?" Moreno said. "Multiply that by the number of businesses in the United States, and that's a lot of time."
Scott Hauge, an insurance broker and small-business advocate in San Francisco, said that for some businesses, the requirement could be particularly onerous, requiring companies to gather tax information from hundreds of vendors and pay accountants to send a form to every one of them.
As the rules are written, Hauge said, a business might even have to obtain tax identification information for the local gas company, and send it a 1099 at the end of the year.
"I represent 100 to 150 insurance companies," said Hauge, who collects premiums for clients and passes them on. "Am I going to have to send it to these enormous companies?"
Republicans are working to repeal the measure, saying that the Obama administration put it in the healthcare act because collecting the unpaid taxes would help offset the cost of the overhaul.
Rep. Dan Lungren (R-Gold River) has introduced a bill to repeal the new rules, which he calls a "paperwork mandate" for small businesses.
Kevin Holsclaw, a spokesman for Lungren, said the law grew out of an ongoing effort to bridge the so-called tax gap — the billions of dollars in taxes that are owed but not paid because people aren't reporting all their income. But, he said, it is way too broad.
Mundaca said that the details of the program would be worked out by the IRS, which has the power to eliminate provisions that are duplicative. Through public hearings and other means, he said, the agency would work to ease any burdens imposed by the new rules.
"The goal is to make the tax system fairer for everyone," he said. "We're working hard to achieve that goal and address any concerns."