Hidden Tax Clause in Health Care Bill = Paperwork Nightmare

While many controversial provisions of the health care reform bill passed by Congress in March were loudly debated in the media, there's one provision with enormous implications for companies that got little attention. Currently, businesses are required to report payments to a vendor for business-related services over $600 via the Form 1099-Misc. However, the Senate Finance Committee buried a rule deep within the thousands of pages of legislation to offset costs, requiring businesses to report payments of more than $600 a year to any vendor, beginning in 2012.

The major change is that, in addition to services, companies will need to track and report expenditures to every single vendor they use for goods, from paperclips to cell phones. Any vendor receiving more than $600 from a company will require a 1099-Misc to be sent to the IRS by that company.

In a recent article, Bloomberg Business Week noted that the IRS says approximately 85 million 1099-Misc forms are filed annually. That number could skyrocket in 2012, given that "the National Small Business Association estimates that the average company will have to file 95 of the forms under the measure, up from fewer than 20 today."

If you are a tax preparer, you should advise your clients as early as possible to begin tracking their expenditures. The accounting systems at most large corporations should be able to extract detailed accounts payable data to assist them in determining which vendors will require them to file a form. However, many small businesses may be caught off guard by the new rule, making it difficult to compile the data they need to prepare their forms.

As a CPA, you are the first line of defense for clients when new regulations such as these become a record keeping nightmare. By preparing clients and proactively assisting them in collecting the data they need, you'll be an invaluable ally when they face the IRS each year.

How healthcare reform impacts your student loans

The health-care legislation approved in March 2010 will have a major impact on student loans, but what does that mean for you? A recent article by Smart Money Magazine highlights the three major changes that will directly affect students:

1. Federal loans will be distributed by direct lending only – Effective July 1, 2010, all federal education loans will be directly distributed. The noticeable impact on students will be slight, such as more favorable terms for PLUS loans (available to graduate students and parents of undergraduates), as well as a higher approval rate for parents of students applying for PLUS loans. The later is due to higher approval standards maintained by private lenders, who are now eliminated from the process.

2. Subtle Pell Grant increases – Approximately $36 billion of savings from eliminating the private lenders from the Federal student loan equation will go toward Pell grant funding over 10 years. The current maximum for Pell grants is $5,550 for 2010-11, which will increase in tandem with the inflation rate for five years from 2013 to 2018. Ultimately, the maximum grant amount would reach $5,975 by 2020, not far from current levels.

3. Delayed changes to income-based repayment plans – Beginning in July 2014, students can take advantage of changes to income-based repayment (IBR) plans, aligning a borrower’s monthly payment to their income rather than debt. IBR currently caps monthly payments at 15% of discretionary income, which will drop to 10% in 2014. It also forgives the outstanding amount owed on the loan after 20 years rather than at the current 25 year mark. The IBR provisions only apply to new borrowers of new student loans beginning on July 1, 2014.

For additional details on the impact of the health-care reform legislation on your student loans, visit http://www.smartmoney.com/personal-finance/college-planning/the-health-care-bill-and-your-student-loans/.