Federal health reform will soon add more federal tax paperwork and reporting burdens onto Connecticut businesses. A lesser known provision of the healthcare reform (the Patient Protection and Affordable Care Act), requires all businesses to file a miscellaneous 1099 form with the IRS for all purchases of property and services that exceed $600, starting in 2012.

Most businesses will now be required to file a 1099 form for every kind of vendor it interacts with-such as for phone, Internet, gasoline, advertising, office supplies, and much more.

Businesses will have to track all purchases and then report the dollar amount of sales on a 1099 form whenever the $600 threshold is reached.

The National Association of Manufacturers says small business owners will have to file two forms-one with the vendor and one with the IRS-for almost every business-to-business transaction. 

Form 1099 also requires the inclusion of a Taxpayer Identification Number (TIN) from each affected payee. Payments to businesses that provide services or that sell property could be withheld by the payor if the IRS determines that there is any problem with, or related to, the TIN.

The new reporting requirement, designed to generate $1.7 billion a year for the government, will dramatically increase businesses' accounting costs and could expose many to audits by the IRS.

According to the U.S. Chamber, unless this section of the health care law is repealed, 40 million entities, including businesses, governments, and nonprofits of all sizes across the nation will be subjected to the new data collection and IRS information filing.

It’s also likely that the mandate will change behavior in the marketplace, driving businesses to reduce the number of vendors they deal with in order to limit the number of 1099 forms they have to file.

Many attempts have been made to modify or repeal this part of the act. So far, politics have blocked the attempts, although the upcoming lame-duck session this fall could take it up.