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Obama Signs 1099 Repeal Into Law
Vol. 808 
April 19, 2011

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As expected, President Obama has signed legislation that repeals expanded 1099 tax rules, eliminating a reporting provision often criticized as burdensome on small businesses. In order to help recoup the projected $22 billion the provision was expected to generate, the new law changes calculations related to health-care credits, effectively requiring more people to repay the government based on their annual income.

"I was pleased to take another step to relieve unnecessary burdens on small businesses," Obama said in a statement. "I look forward to continuing to work with Congress to improve the tax credit policy in this legislation and I am eager to work with anyone with ideas about how we can make health care better or more affordable."

The repeal of the tax-reporting requirement, which was passed last year as part of national health-care reform, is considered a victory for businesses, charities and nearly 40 million self-employed workers. Under the expanded 1099 rules, these groups would have been forced to file tax forms for every vendor they paid more than $600 to in a given year. The goal of the rules was to stop tax fraud, but the provision became unpopular when it was realized how many extra forms would need to be filed with the Internal Revenue Service. The new law returns filing requirements to their previous state, in which businesses must only report payments to unincorporated entities for services.

Beginning last summer, Congressional leaders from both major parties tried several times to repeal the provision, but no one measure could gain enough support to pass. In his State of the Union speech in January, Obama endorsed changes to the 1099 provision, hoping tax credits would not be altered in any new legislation. After about nine months of debate and defeated measures, the U.S. House approved a repeal bill by a 314-112 margin on March 3 that was later overwhelmingly passed by the U.S. Senate on April 5. Obama signed the legislation last week despite his objections to the repayment requirements.

While the guidelines are voluntary, companies will likely face heavy pressure to adopt them. "There's clearly a demand hidden behind the velvet glove of the voluntary language," said Dan Jaffe, an executive vice president of the Association of National Advertisers. Some leading food companies have criticized the proposal, saying the industry has already taken major steps to make recipes healthier and to advertise responsibly to children. "The rate of reformulation is going to increase, not as a result of the principles that were announced today but because consumers are demanding changes in the marketplace," said Scott Faber, a vice president of the Grocery Manufacturers Association, a group that represents food makers.

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