The old rules

For years, independent contractors have been subjected to the annual mailbox-filling ritual known as 1099 reporting season, in which businesses of all kinds report payments they have made to their unincorporated and non-employee vendors, suppliers, and consultants. Companies that hire independent contractors have to track annual payments and file Form 1099 when payments to an unincorporated service-provider (generally a sole proprietor) total $600 per calendar year.

In order to comply with the 1099 filing requirement, businesses have to obtain the provider’s tax ID number (either a federal employer ID number or their Social Security number.) This requires them to request a form W-9 from independent contractors before they can make payments.

If you just consider all of the paper flowing back and forth under the old rules, it is clear the IRS has done its part to help fund the United States Postal Service. But, it is about to get even worse.

The new rules

The burden for filing form 1099s and requesting form W-9s is about to increase thanks to recent changes included in the Health Care Reform Bill.

Starting with payments made in 2012, Form 1099 will be required for payments made to corporations as well as sole proprietors, partnerships, and LLCs. Beginning in January of 2012, businesses paying incorporated businesses will need to track their payment totals and capture taxpayer ID numbers so they can properly report totals at the end of each year. During 2012, payers will need to send out a slew of W-9 forms to request and capture ID numbers for use in creating the 1099 forms. Unlike current law that requires 1099s be sent only to vendors who provide services, these new rules apply equally to purchases of goods and services.

Now might be a good time to stock up on printer ink and postage.