Home Builders Ask Congress to Repeal Costly 1099 Reporting

Affordable Care Act requirements would have cost seven-employee builder $9,000 in compliance

The National Association of Home Builders (NAHB) called on Congress today to repeal all new expanded 1099 reporting requirements imposed in recent laws because they will hamper job creation and place a major paperwork burden on the nation's small businesses.

Testifying on behalf of NAHB before the House Small Business Committee, Mike Kegley, a builder from Union, Ky., and president of the Home Builders Association of Kentucky, told lawmakers that collecting W-9 forms, monitoring payments over the course of a year, and additional staff time will cost individual small businesses thousands of dollars per year.

Under the Patient Protection and Affordable Care Act approved last year, starting in 2012 businesses will have to file an IRS Form 1099 for each vendor with whom they spend more than $600 in goods or services in any given tax year.

Kegley, who built six homes last year and employs seven workers, estimates his firm would have had to file an additional 173 forms for 2010 had the law been in effect.

"It would have cost my company $6,400 to obtain and catalog the W-9 forms and $2,600 to generate the additional Form 1099s, for an estimated total of $9,000," he said.

Tax paperwork demands make it more difficult for small businesses to put new employees on their payrolls, he added.

"Rather than hiring additional workers to expand and grow, small businesses will be spending money on accountants and bookkeepers in order to keep up with these new requirements," he said.

The real onus does not necessarily fall on businesses issuing the additional forms, Kegley cautioned.

"For each small business that will now generate an additional 40, or 80 or 100 new 1099 forms, businesses large and small that sell goods will receive thousands, if not tens of thousands, of additional forms that they will have to match against their records. Businesses will be overwhelmed," he said.

NAHB also believes that the expansion of the 1099 requirements will make small businesses less competitive relative to larger, corporate businesses because smaller firms will take steps to reduce their paperwork burdens by purchasing from fewer sources.

"Rather than purchasing nails from the local hardware store, lumber from the specialized dealer and drywall from any supplier, builders may simply take all of their business to a larger retailer to reduce the resulting paperwork from each purchase," said Kegley. "Small product suppliers will pay a price."

While all small businesses will be hit by the broader 1099 reporting requirements next year, the Small Business Jobs Act of 2010 stipulates that independent landlords as of Jan. 1, 2011 must now submit 1099s for transactions totaling more than $600 in a year.

"By imposing this change in the law with less than three months notice, we believe it is reasonable to say that landlords have been set up for failure when it comes to compliance," said Kegley. "NAHB urges Congress to reexamine the wisdom of imposing these burdensome requirements on independent landlords and, ultimately, to repeal them."

Meanwhile, the Senate on Feb. 2 adopted an amendment to the Federal Aviation Administration reauthorization bill to repeal the new 1099 reporting requirements in last year's health care law.

"I applaud the Senate's action last week and urge the House to follow suit," said Kegley.