Tax Advisory: Are you ready for the changes? 

Questions continue to circulate about the new healthcare reform bill Congress passed in March and what it will mean for accounts payable professionals. The Patient Protection and Affordable Care Act includes an amendment to Section 6041, the part of the IRS tax code that addresses 1099 reporting.

It’s not over until it’s over, but for now the information released about the amendment is that it increases the 1099 reporting requirements significantly, which means AP departments will have to change the way they handle W-9s to be prepared for the new law to take effect Jan. 1, 2012. 

The changes are one way the federal government is trying to close the $345 billion “tax gap,” or the difference between what companies and individuals earn and what they pay in U.S. taxes. One estimate, published in the Wall Street Journal, says Congress expects the provision to help bring in $17 billion more in federal taxes and fees. 

Among the issues AP professionals are watching, according to Sean Evans, a senior tax manager with tax consulting firm Ducharme, McMillen & Associates:

• Elimination of the corporate exemption for 1099 reporting. AP departments will be required to report 1099 forms for most entities that do business with their organizations. Until now, this applied only to service providers that invoiced the business for payments of more than $600 a year but excluded service providers that were incorporated. It’s unclear at this time whether AP departments will have to automatically withhold tax on payments to these entities.

• Addition of tangible property in 1099 reporting requirements. AP departments will have to submit 1099s for vendors that provide not just services, but also any that provide them more than $600 worth of physical goods in a calendar year. It’s still unclear whether there will be any exemptions for specific industries.

• Reporting of insurance premium payments. Employers will be required to report on W-2 forms the value of the healthcare they offer to workers. It’s still unclear whether that applies to just the part paid by the employer, just the part paid by the employee, or both. Also watch for discussion about whether healthcare payments made by employers will be taxed as income.

• An increase in IRS audits around the 1099 reporting. Then IRS plans to audit the insurance companies to make sure they’re fulfilling what they’ve said employees are receiving. The healthcare package includes funding to hire 16,000 new auditors.

Here are some recommendations for dealing with the change, according to cost recovery audit firm Lavante:

• Companies should plan to start collecting and validating W-9s and taxpayer identification numbers (TINs) for each supplier they will spend more than $600 with for the 2012 year. 

• Companies will need to issue and submit 1099s to suppliers and the IRS early in 2013 for the year 2012. 

Penalties for a company that doesn’t comply are expected to increase significantly under the new legislation. 


B-Notice changes

The IRS posted a new set of guidelines in June about how buyers and sellers handle B-Notices until further notice. Announcement 2010-41 gave instructions that were to tide over AP departments in the interim until the IRS could issue more information, which was scheduled for June 21.

AP departments send B Notices to contractors who fail more than once to supply the correct Social Security number, taxpayer identification number, or other information on W-9 forms. The purpose is to notify these payees that if they don’t comply, the entity paying them will have to keep some of the invoiced amount as backup withholding.

AP departments are required to notify errant vendors about which steps they need to take to correct their tax identification information. But on Jan. 1, the IRS discontinued the form that was used to verify the information, SSA-7028. Until the IRS announces new procedures, its newest guidelines, this is the language the agency recommended AP departments use:

“Note that the Instructions for Incorrect Social Security Numbers have changed and the SSA no longer uses Form SSA-7028. You must request a Social Security Number Printout from SSA rather than form SSA-7028. You must send a copy of the Social Security Number Printout directly to us, along with a copy of this notice.”

For information, visit www.irs.gov.


Harmonized sales tax in Canada 

AP professionals doing business in or with Canada should be aware of a tax change that was set to take effect July 1, 2010. That’s the date British Columbia and Ontario set for adopting a harmonized sales tax, which combines provincial tax (PST) and goods and services tax (GST). British Columbia set its HST rate at 12 percent and Ontario at 13 percent. 

The two join the Atlantic provinces of New Brunswick, Newfoundland, and Nova Scotia, which implemented a 15 percent HST in 1997 and have since lowered it to 13 percent. 

This year’s proposed tax change caused a political stir, spawning petitions among users who said the HST adoptions would increase the cost of items such as movie tickets, vitamins, and airline tickets.