President Signs Repeal of 1099 Tax Provision in Health Care Reform Law

By Bill Leonard Apr 7, 2011

updated 4/18/2011

President Barack Obama on April 14, 2011, signed into law a measure repealing a controversial funding provisions under the health care reform overhaul that would have required all businesses to file 1099 tax forms for transactions of $600 or more.

On April 5, 2011, the Senate had voted to approve legislation (H.R. 4) to rescind the 1099 tax-reporting requirement. The House passed the same measure in early March 2011.

Business leaders and advocacy groups had widely criticized the requirement and had lobbied for its repeal. Prior to the repeal vote, the Society for Human Resource Management sent a letter to congressional leaders urging them to vote for the repeal and stating that the reporting “requirement is an onerous burden on employers of all sizes and provides no health care benefits.”

Repeal of the provision gained wide bipartisan support on Capitol Hill and passed the Senate easily, 87-12. The House also gave the measure strong bipartisan support. Some Republican leaders touted the Senate’s passage of the legislation as a first step in a full repeal of the health care reform law, which was signed into law in March 2010.

“So this is a big win for small business. Importantly, it’s also the first of what I hope are many successful repeal votes related to the disastrous health spending bill Democrats passed last year,” said Senate Minority Leader Mitch McConnell, R-Ky. “The more Americans learn about this bill, the less they like it. We hope we can respond to their concerns with many repeal votes like this here in Congress.”

However, other senators said the protracted debate on the 1099 issue illustrates just how difficult it will be to enact a full repeal of the health care law. The effort to repeal the tax-reporting requirement nearly stalled several times as Republicans and Democrats sparred over how to pay for lost tax revenue. The congressional Joint Committee on Taxation estimated that the 1099 provision would increase federal revenue by $17.1 billion over 10 years.

“This was a provision that pretty quickly everybody agreed was foolish,” Sen. Mike Johanns, R-Neb., a chief proponent of the 1099 repeal, told reporters. “Still, we held more than a dozen votes in the Senate just to get to this point and finally pass the repeal.”

During the debate on the repeal, the president and congressional leaders in both parties stated that the cost of repealing the 1099 requirement had to be offset by spending cuts or by increasing federal revenues. The repeal proposal as passed by the House and Senate would offset the revenue loss by increasing rates that individuals or families must use to pay back federal subsidies for health care coverage. Under the health care reform law, any individual or family earning less than four times the federal poverty level will be eligible for the health coverage subsidy beginning in 2014.

These subsidies will be provided on a sliding scale to help offset the cost of health care coverage purchases through state health care exchanges. However, any individual or family whose income increases above 400 percent of the poverty level (a threshold of $44,000 per year for individuals and $88,000 for families) will be required to repay all or part of the subsidy that they received.

H.R. 4 would increase the amounts people would have to repay and accelerate the payback timetable. Democratic leaders had opposed that change, saying that the proposal amounted to a tax increase on the middle class. Senate Democrats had threatened to block the measure from passing. However, Republicans were willing to negotiate on other proposed health care spending cuts. Once a compromise was reached, the repeal measure was approved quickly.

Bill Leonard is a senior writer for SHRM.

Related Articles:

House Votes to Repeal Tax Reporting RequirementHR News, March 4, 2011

Employers Hope to Alter Health Care Reform, SHRM Online Benefits Discipline, November 2010


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