Expanded 1099 Reporting Requirements Repealed

Despite numerous uncertainties, many states and the federal government are moving forward with implementing aspects of the Patient Protection and Affordable Care Act of 2010 (the “health care reform law”).

However, certain provisions of the health care reform law are undergoing closer scrutiny and some have either been repealed or their effective dates have been delayed. One such affected provision is that relating to the scheduled expanded income reporting requirements to the IRS through Form 1099.

Recently, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayment Acts of 2011 (the “Act”) was signed into law. This Act repeals the requirement contained in the health care reform law that payments of $600 or more made to corporations that relate to amounts paid for any type of goods or services be reported to the IRS.

Background

Businesses have long had to issue a Form 1099-MISC to each individual service provider who is paid $600 or more during the year in the course of business. Reportable payments include compensation paid to individuals for both goods and services. Some exceptions applied.

Expanded Reporting

The health care reform law, however, greatly expanded this mandated reporting requirement by removing the exception for most payments to corporations. This change was to become effective starting in 2012. Thus, the existing requirement that business taxpayers report payments of nonemployee compensation, interest, rents, royalties, etc., totaling $600 or more was expanded to include payments made to corporations, other than tax-exempt corporations. These new reporting requirements promised to burden businesses with substantial additional

recordkeeping – as well as potential increased costs.

Now, there’s relief: These new Form 1099 rules have been repealed by the Act. Basically, the reporting requirements revert to the rules in effect prior to the 2010 changes. (The requirement that rental property owners report certain payments to service providers on Form 1099 starting in 2011 also has been repealed. This provision was originally included in the Small Business

Jobs Act of 2010).

Doeren Mayhew Can Help

Please contact Doeren Mayhew if you have any further questions relating to the repeal of the health care reform law’s 1099 reporting requirements at 248.244.3110

Retirement and Benefit Plan Changes for 2011

Federal legislation over the past few years has brought about additional tax law revisions relating to retirement and other benefit plans that go into effect for 2011. The following are highlights of some of the lesser known provisions.

“Simple Cafeteria Plans.” Beginning in 2011, small employers (generally, those with an average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a “simple cafeteria plan.” Under such a plan, the employer may take advantage of safe harbor rules that allow the employer to avoid the tax law’s nondiscrimination requirements that pertain to cafeteria plans generally, as well as to specified qualified benefits, such as group-term life insurance, self-insured medical reimbursement, or dependent care assistance plans.

Health plan reimbursement restrictions. Expenses for non-prescription medicines may no longer be reimbursed with tax-advantaged dollars through certain employer sponsored plans. Specifically, the cost of over-the-counter medicines cannot be reimbursed with excludable income for expenses incurred with respect to tax years beginning after 2010 through a health reimbursement account or a flexible spending account, unless prescribed by a doctor. For health savings accounts (HSAs) or Archer medical savings accounts (MSAs), the restriction relates to amounts paid with respect to tax years commencing in 2011 and after.

Increased tax penalty on non-qualifying HSA and MSA distributions. Beginning with tax years starting in 2011, the addition tax assessed on non-qualifying distributions from an HSA is increased from 10% to 20%. For MSA distributions not used for qualifying medical expenses, the penalty is also increased from 15% to 20%.

Qualifying charitable IRA distributions up to $100,000 excluded from gross income. A taxpayer age 70½ or older may make tax-free distributions up to $100,000 from an IRA to charity. The tax benefits to such charitable giving: (1) qualifying IRA distributions are not included in the donor’s gross income (nor may they be claimed as a charitable donation) for income-tax purposes and (2) charitable IRA distributions count toward the donor’s required minimum IRA distributions for the year of the distribution (a special rule applies for distributions made in early 2011). The rule is set to expire after 2011.

Designated Roth accounts permitted in 457 plans. For tax years beginning after 2010, governmental 457(b) deferred compensation plans may offer a qualified Roth contribution program. So, a 457(b) plan maintained by a state (or a state’s political subdivision, state agency, or instrumentality) can offer a designated Roth account.

Partial annuitization of annuities. Beginning in 2011, taxpayers may partially annuitize a nonqualified annuity, endowment, or life insurance contract. Generally, owners of nonqualified annuities may elect to receive a portion of an annuity contract in a stream of current annuity distributions. This benefits the account holder by enabling him or her to leave the remainder of the contract to accumulate on a tax-deferred basis. This rule does not change the treatment for annuities payable under qualified retirement plans, 403(a) or 403(b) annuity plans, or IRAs.

Questions?

These retirement and benefit plan-related rules are among many tax law changes that may impact your 2011 and later tax planning. Please contact Doeren Mayhew if you have any questions relating to the provisions discussed above or any issues dealing with recent changes in the tax laws. Our professionals are ready to help.