Unintended consequence of health care reform? More farm tax paperwork

Many farm businesses will need to schedule more time to get all of their tax information ready for their tax adviser beginning in 2012 due to a recent change made in the federal tax code.

Beginning in 2012, a little discussed mandate in the health care reform legislation (Patient Protection and Affordable Care Act) will require any business that purchases more than $600 of goods or services from another business or individual to submit a 1099 tax from to the Internal Revenue Service.

The old way

Under current law, businesses send Form 1099s for payments in excess of $600 for rent, interest, dividends, and non-employee services when these payments are made to entities other than corporations. Payments made to a corporation and payments for merchandise are not required to be reported.

In agriculture, 1099s have been traditionally used to document income for individual workers or independent contractors who receive compensation other than wages and salaries.

For example, Farmer Jones hires Farmer Brown to custom combine soybeans for $30 per acre. If Farmer Brown combines more than 20 acres ($600 cap), a 1099 is issued.

The new way

Under the new rules, a 1099 would also have to be issued by the farm business to any business or individual from whom the farm purchases tangible goods. The new rules also require the farm to issue 1099s to corporations as well. 1099s would have to been issued for purchases of goods or services from any source.

For example, Farmer Jones purchases 25 tons of lime valued at $760 worth from XYZ Lime, and Farmer Brown purchases $700 of baler twine from R U-Ready Farm Supply. Both Farmer Jones and Farmer Brown would be required to issue 1099s for these purchases.

Could get ugly

Or maybe you bought a new computer from Apple and wrote a check for $856 to cover the computer, a printer, and for ink cartridges. At the end of the year you will have to obtain the corporate name, address, and federal tax identification number for Apple and mail them a Form 1099 from your farm business.

The requirement is not just for one single payment over $600, but the accumulated payments throughout the year. So, whether you are making monthly interest payments to the bank or writing a single check at the end of the year, you will have to send a Form 1099. Maybe it is monthly bills to your diesel fuel supplier or for your Internet provider.

If you want to be able to deduct any farm expenses from Tractor Supply Company or anywhere else when you run for a bag of bolts, transmission fluid, or grease gun cartridge, you will have to send them a Form 1099 if your total exceeds $600 during the year.

Imagine how this will also affect purchasing farm supplies over the Internet.

This new tax rule could require millions of additional forms to be issued from the farm sector.

Why? The health care bill mandate aims to collect lost revenue from companies that under-report on their tax returns. The provision is expected to raise $17 billion over 10 years.

Could be overturned

This 1099 reporting mandate has the distinction of being the first provision of the health care bill to be challenged in Congress. U.S. Rep. Dan Lungren from California submitted House Resolution 5141 The Small Business Paperwork Mandate Elimination Act, which proposes to remove section 9006 of H.R. 3590.

This bill was referred to the House Ways and Means Committee at the end of April.

It will be interesting to watch what happens between now and January 2012 to these new tax provisions. Don’t you love the hidden paragraphs of legislation?

Have a good and safe day!

About the Author

(David Marrison is an agricultural extension educator in Ashtabula County.) More Stories by David Marrison

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