[House Report 112-16]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 112-16
======================================================================
COMPREHENSIVE 1099 TAXPAYER PROTECTION AND REPAYMENT OF EXCHANGE
SUBSIDY OVERPAYMENTS ACT OF 2011
_______
February 22, 2011.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Camp, from the Committee on Ways and Means,
submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 705]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 705) to amend the Internal Revenue Code of 1986 to
repeal the expansion of information reporting requirements to
payments made to corporations, payments for property and other
gross proceeds, and rental property expense payments, and for
other purposes, having considered the same, report favorably
thereon with an amendment and recommend that the bill as
amended do pass.
CONTENTS
Page
I. Summary and Background...........................................2
II. Explanation of the Bill..........................................4
A. Repeal of Expansion of Information Reporting
Requirements (sec. 2 of the bill and sec. 6041 of
the Code).......................................... 4
B. Repeal of Information Reporting Requirements with
Respect to Real Estate Expenses (sec. 3 of the bill
and sec. 6041 of the Code)......................... 6
C. Increase in Amount of Overpayment of Health Care
Credit Which is Subject to Recapture (sec. 4 of the
bill and sec. 36B of the Code)..................... 8
III. Votes of the Committee..........................................13
IV. Budget Effects of the Bill......................................14
V. Other Matters To Be Discussed Under the Rules of the House......20
VI. Changes in Existing Law Made by the Bill, as Reported...........23
VII. Dissenting Views................................................26
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Comprehensive 1099 Taxpayer Protection
and Repayment of Exchange Subsidy Overpayments Act of 2011''.
SEC. 2. REPEAL OF EXPANSION OF INFORMATION REPORTING REQUIREMENTS TO
PAYMENTS MADE TO CORPORATIONS AND TO PAYMENTS FOR
PROPERTY AND OTHER GROSS PROCEEDS.
(a) Application to Corporations.--Section 6041 of the Internal Revenue
Code of 1986 is amended by striking subsections (i) and (j).
(b) Payments for Property and Other Gross Proceeds.--Subsection (a) of
section 6041 of such Code is amended--
(1) by striking ``amounts in consideration for property,'',
and
(2) by striking ``gross proceeds,'' both places it appears.
(c) Effective Date.--The amendments made by this section shall apply
to payments made after December 31, 2011.
SEC. 3. REPEAL OF EXPANSION OF INFORMATION REPORTING REQUIREMENTS FOR
RENTAL PROPERTY EXPENSE PAYMENTS.
(a) In General.--Section 6041 of the Internal Revenue Code of 1986 is
amended by striking subsection (h).
(b) Effective Date.--The amendment made by this section shall apply to
payments made after December 31, 2010.
SEC. 4. INCREASE IN AMOUNT OF OVERPAYMENT OF HEALTH CARE CREDIT WHICH
IS SUBJECT TO RECAPTURE.
(a) In General.--Clause (i) of section 36B(f)(2)(B) of the Internal
Revenue Code of 1986 is amended to read as follows:
``(i) In general.--In the case of a taxpayer
whose household income is less than 400 percent
of the poverty line for the size of the family
involved for the taxable year, the amount of
the increase under subparagraph (A) shall in no
event exceed the applicable dollar amount
determined in accordance with the following
table (one-half of such amount in the case of a
taxpayer whose tax is determined under section
1(c) for the taxable year):
----------------------------------------------------------------------------------------------------------------
``If the household income (expressed as a
percent of poverty line) is: The applicable dollar amount is:
----------------------------------------------------------------------------------------------------------------
Less than 200%............................... $600
At least 200% but less than 300%............. $1,500
At least 300% but less than 400%............. $2,500.''.
----------------------------------------------------------------------------------------------------------------
(b) Effective Date.--The amendment made by this section shall apply to
taxable years ending after December 31, 2013.
I. Summary and Background
A. PURPOSE AND SUMMARY
The bill, H.R. 705 (the ``Comprehensive 1099 Taxpayer
Protection and Repayment of Exchange Subsidy Overpayments Act
of 2011''), as amended, reported by the Committee on Ways and
Means, provides for the repeal of the expanded information
reporting requirements, enacted in section 9006 of the Patient
Protection and Affordable Care Act of 2010 (``PPACA''), Pub. L.
No. 111-148 (March 23, 2010), the repeal of the information
reporting requirements with respect to real estate expenses
enacted in section 2101 of the Small Business Jobs Act of 2010
(``SBJA''), Pub. L. No. 111-240 (September 27, 2010), and an
increase in the amount of the required repayment of overpayment
of health care credits.
Section 2 of the bill repeals the PPACA changes to section
6041 that provide rules for payments to corporations, provide
additional regulatory authority and impose a reporting
requirement with respect to gross proceeds from property.
Section 3 repeals the SBJA change to section 6041 that subjects
recipients of rental income from real estate, who are not
otherwise considered to be engaged in a trade or business, to
the same information reporting requirements as taxpayers who
are considered to be engaged in a trade or business.
Section 4 increases the amount of the required repayment of
overpayment of advance payment of the premium assistance
credits for health insurance purchased through an exchange.
B. BACKGROUND AND NEED FOR LEGISLATION
Originally enacted in 2010 to help finance the cost of
PPACA, the new provisions requiring expanded tax information
reporting by businesses have generated considerable concern
among taxpayers and policymakers alike. It is now widely
acknowledged that, if allowed to go into effect, the expansion
of these information reporting requirements will impose a
substantial tax compliance burden on small businesses, forcing
them to devote scarce resources to tax filing instead of to
business expansion and job creation. Similarly, the
subsequently enacted provision in SBJA that further expands
these Form 1099 reporting requirements to owners of rental real
estate has already begun to ensnare millions of American
families in a complex web of new tax filing requirements.
Because the burdens on taxpayers resulting from the imposition
of these new Form 1099 reporting requirements outweigh any
potential improvement in tax compliance, the bill reflects a
consensus that these new rules should be repealed.
In addition, given the Federal government's current fiscal
situation, it is imperative that Congress scrutinize the
Federal budget to identify the potential for waste, fraud, and
abuse, and to make appropriate changes to Federal programs in
order to better protect taxpayer dollars. Under PPACA, the
design of the new refundable tax credits for purchasing health
insurance through exchanges gives rise to the potential for
such waste, fraud, and abuse due to the combination of income
determination rules that are highly susceptible to error and of
strict limits on the recapture of overpayments of these
exchange subsidies where income has been underestimated.
Accordingly, the bill seeks to reduce waste, fraud, and abuse
by improving the mechanism by which exchange subsidy
overpayments are to be repaid.
C. LEGISLATIVE HISTORY
Background
H.R. 705 was introduced on February 15, 2011, and was
referred to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up the bill on
February 17, 2011, and ordered the bill, as amended, favorably
reported.
Committee hearings
The Committee on Ways and Means held a full Committee
hearing on January 20, 2011, on fundamental tax reform. This
hearing focused on the economic and administrative burdens
imposed by the current structure of the Federal income tax,
including with respect to the burdens associated with the new
Form 1099 reporting requirements.
The Committee on Ways and Means held a full Committee
hearing on January 26, 2011, on the health care law's impact on
jobs, employers, and the economy, including the impact of
PPACA's expanded Form 1099 reporting requirements.
The Committee on Ways and Means held full Committee
hearings on February 15, 2011, and February 16, 2011, with
Secretary of the Treasury Timothy F. Geithner and Secretary of
Health and Human Services Kathleen Sebelius, respectively, on
the President's Fiscal Year 2012 Budget, including the
President's proposal relating to information reporting on
payments to corporations and payments for property and the
Administration's plans to implement various aspects of PPACA.
II. Explanation of the Bill
A. REPEAL OF EXPANSION OF INFORMATION REPORTING REQUIREMENTS (SEC. 2 OF
THE BILL AND SEC. 6041 OF THE CODE)
Present law
A variety of information reporting requirements apply under
present law.\1\ The primary provision governing information
reporting by payors requires an information return by every
person engaged in a trade or business who makes payments to any
one payee aggregating $600 or more in any taxable year in the
course of that payor's trade or business.\2\ Reportable
payments include compensation for both goods and services, and
may include gross proceeds. Certain enumerated types of
payments that are subject to other specific reporting
requirements are carved out of reporting under this general
rule by regulation.\3\ Another carveout excepts payments to
corporations from reporting requirements.\4\
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\1\Secs. 6031 through 6060.
\2\Sec. 6041(a). Information returns are generally submitted
electronically on Forms 1096 and Forms 1099, although certain payments
to beneficiaries or employees may require use of Forms W-3 and W-2,
respectively. Treas. Reg. sec. 1.6041-1(a)(2).
\3\Sec. 6041(a) requires reporting of payments ``other than
payments to which section 6042(a)(1), 6044(a)(1), 6047(c), 6049(a) or
6050N(a) applies and other than payments with respect to which a
statement is required under authority of section 6042(a), 6044(a)(2) or
6045[.]'' The payments thus excepted include most interest, royalties,
and dividends.
\4\Treas. Reg. sec. 1.6041-3(p).
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For payments made after December 31, 2011, the class of
payments subject to reporting was expanded in two ways.\5\
First, the regulatory carveout for payments to corporations was
expressly overridden by the addition of section 6041(i). In
addition, information reporting requirements were expanded to
include gross proceeds paid in consideration for any type of
property. The payor is required to provide the recipient of the
payment with an annual statement showing the aggregate payments
made and contact information for the payor.\6\ The regulations
generally except from reporting payments to exempt
organizations, governmental entities, international
organizations, or retirement plans.
---------------------------------------------------------------------------
\5\The Patient Protection and Affordable Care Act, Pub. L. No. 111-
148, sec. 9006 (March 23, 2010).
\6\Sec. 6041(d). Specifically, the recipient of the payment is
required to provide a Form W-9 to the payor, which enables the payee to
provide the recipient of the payment with an annual statement showing
the aggregate payments made and contact information for the payor. If a
Form W-9 is not provided, the payor is required to ``backup withhold''
tax at a rate of 28 percent of the gross amount of the payment unless
the payee has otherwise established that the income is exempt from
backup withholding. The backup withholding tax may be credited by the
payee against regular income tax liability, i.e., it is effectively an
advance payment of tax, similar to the withholding of tax from wages.
---------------------------------------------------------------------------
Additionally, the requirement that businesses report
certain payments is generally not applicable to payments by
persons engaged in a passive investment activity. However,
beginning in 2011, recipients of rental income from real estate
generally are subject to the same information reporting
requirements as taxpayers engaged in a trade or business.\7\ In
particular, rental income recipients making payments of $600 or
more to a service provider (such as a plumber, painter, or
accountant) in the course of earning rental income are required
to provide an information return (typically Form 1099-MISC) to
the IRS and to the service provider. Exceptions to this
reporting requirement are made for (i) individuals who rent
their principal residence on a temporary basis, including
members of the military or employees of the intelligence
community (as defined in section 121(d)(9)), (ii) individuals
who receive only minimal amounts of rental income, as
determined by the Secretary in accordance with regulations, and
(iii) individuals for whom the requirements would cause
hardship, as determined by the Secretary in accordance with
regulations.\8\
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\7\Sec. 6041(h); Small Business Jobs Act of 2010, Pub. L. No. 111-
240, sec. 2101 (Sept. 27, 2010).
\8\Treasury has not promulgated regulations defining these
``minimal amounts of rental income'' or ``hardship'' cases.
---------------------------------------------------------------------------
Detailed rules are provided for the reporting of various
types of investment income, including interest, dividends, and
gross proceeds from brokered transactions (such as a sale of
stock).\9\ In general, the requirement to file Form 1099
applies with respect to amounts paid to U.S. persons and is
linked to the backup withholding rules of section 3406. Thus, a
payor of interest, dividends or gross proceeds generally must
request that a U.S. payee (other than certain exempt
recipients) furnish a Form W-9 providing that person's name and
taxpayer identification number.\10\ That information is then
used to complete the Form 1099.
---------------------------------------------------------------------------
\9\Secs. 6042 (dividends), 6045 (broker reporting) and 6049
(interest), as well as the Treasury regulations thereunder.
\10\See Treas. Reg. sec. 31.3406(h)-3.
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Failure to comply with the information reporting
requirements results in penalties, which may include a penalty
for failure to file the information return,\11\ a penalty for
failure to furnish payee statements,\12\ or failure to comply
with other various reporting requirements.\13\
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\11\Sec. 6721.
\12\Sec. 6722.
\13\Sec. 6723.
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Reasons for change
The Committee understands that there is a significant tax
gap, or difference between the amount of tax owed by taxpayers
and the amount voluntarily paid to the IRS, that must be
addressed. The Committee also recognizes that information
reporting requirements generally improve taxpayer compliance.
However, the Committee is concerned that the expansion of the
information reporting requirements imposes a substantial tax
compliance burden on small businesses, including costs to
acquire new software or pay for additional accounting services.
The Committee believes this burden is disproportionate as
compared with any resulting improvement in tax compliance and
therefore believes that these requirements should be repealed
in their entirety. The Committee will continue to explore other
potential solutions to the tax gap problem.
Explanation of provision
Under the provision, the changes to section 6041 enacted
under section 9006 of the Patient Protection and Affordable
Care Act that provide rules for payments to corporations,
provide additional regulatory authority and impose a reporting
requirement with respect to gross proceeds from property, are
repealed in their entirety.
Effective date
This provision is effective for payments made after
December 31, 2011.
B. REPEAL OF INFORMATION REPORTING REQUIREMENTS WITH RESPECT TO REAL
ESTATE EXPENSES (SEC. 3 OF THE BILL AND SEC. 6041 OF THE CODE)
Present law
A variety of information reporting requirements apply under
present law.\14\ The primary provision governing information
reporting by payors requires an information return by every
person engaged in a trade or business who makes payments to any
one payee aggregating $600 or more in any taxable year in the
course of that payor's trade or business.\15\ Reportable
payments include compensation for both goods and services, and
may include gross proceeds. Certain enumerated types of
payments that are subject to other specific reporting
requirements are carved out of reporting under this general
rule by regulation.\16\ Another carveout excepts payments to
corporations from reporting requirements.\17\
---------------------------------------------------------------------------
\14\Secs. 6031 through 6060.
\15\Sec. 6041(a). Information returns are generally submitted
electronically on Forms 1096 and Forms 1099, although certain payments
to beneficiaries or employees may require use of Forms W-3 and W-2,
respectively. Treas. Reg. sec. 1.6041-1(a)(2).
\16\Sec. 6041(a) requires reporting of payments ``other than
payments to which section 6042(a)(1), 6044(a)(1), 6047(c), 6049(a) or
6050N(a) applies and other than payments with respect to which a
statement is required under authority of section 6042(a), 6044(a)(2) or
6045[.]'' The payments thus excepted include most interest, royalties,
and dividends.
\17\Treas. Reg. sec. 1.6041-3(p).
---------------------------------------------------------------------------
For payments made after December 31, 2011, the class of
payments subject to reporting was expanded in two ways.\18\
First, the regulatory carveout for payments to corporations was
expressly overridden by the addition of section 6041(i). In
addition, information reporting requirements were expanded to
include gross proceeds paid in consideration for any type of
property. The payor is required to provide the recipient of the
payment with an annual statement showing the aggregate payments
made and contact information for the payor.\19\ The regulations
generally except from reporting payments to exempt
organizations, governmental entities, international
organizations, or retirement plans.
---------------------------------------------------------------------------
\18\The Patient Protection and Affordable Care Act, Pub. L. No.
111-148, sec. 9006 (March 23, 2010).
\19\Sec. 6041(d). Specifically, the recipient of the payment is
required to provide a Form W-9 to the payor, which enables the payee to
provide the recipient of the payment with an annual statement showing
the aggregate payments made and contact information for the payor. If a
Form W-9 is not provided, the payor is required to ``backup withhold''
tax at a rate of 28 percent of the gross amount of the payment unless
the payee has otherwise established that the income is exempt from
backup withholding. The backup withholding tax may be credited by the
payee against regular income tax liability, i.e., it is effectively an
advance payment of tax, similar to the withholding of tax from wages.
---------------------------------------------------------------------------
Additionally, the requirement that businesses report
certain payments is generally not applicable to payments by
persons engaged in a passive investment activity. However,
beginning in 2011, recipients of rental income from real estate
generally are subject to the same information reporting
requirements as taxpayers engaged in a trade or business.\20\
In particular, rental income recipients making payments of $600
or more to a service provider (such as a plumber, painter, or
accountant) in the course of earning rental income are required
to provide an information return (typically Form 1099-MISC) to
the IRS and to the service provider. Exceptions to this
reporting requirement are made for (i) individuals who rent
their principal residence on a temporary basis, including
members of the military or employees of the intelligence
community (as defined in section 121(d)(9)), (ii) individuals
who receive only minimal amounts of rental income, as
determined by the Secretary in accordance with regulations, and
(iii) individuals for whom the requirements would cause
hardship, as determined by the Secretary in accordance with
regulations.\21\
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\20\Sec. 6041(h); Small Business Jobs Act of 2010, Pub. L. No. 111-
240, sec. 2101 (Sept. 27, 2010).
\21\Treasury has not promulgated regulations defining these
``minimal amounts of rental income'' or ``hardship'' cases.
---------------------------------------------------------------------------
Detailed rules are provided for the reporting of various
types of investment income, including interest, dividends, and
gross proceeds from brokered transactions (such as a sale of
stock).\22\ In general, the requirement to file Form 1099
applies with respect to amounts paid to U.S. persons and is
linked to the backup withholding rules of section 3406. Thus, a
payor of interest, dividends or gross proceeds generally must
request that a U.S. payee (other than certain exempt
recipients) furnish a Form W-9 providing that person's name and
taxpayer identification number.\23\ That information is then
used to complete the Form 1099.
---------------------------------------------------------------------------
\22\Secs. 6042 (dividends), 6045 (broker reporting) and 6049
(interest), as well as the Treasury regulations thereunder.
\23\See Treas. Reg. sec. 31.3406(h)-3.
---------------------------------------------------------------------------
Failure to comply with the information reporting
requirements results in penalties, which may include a penalty
for failure to file the information return,\24\ and a penalty
for failure to furnish payee statements\25\ or failure to
comply with other various reporting requirements.\26\
---------------------------------------------------------------------------
\24\Sec. 6721.
\25\Sec. 6722.
\26\Sec. 6723.
---------------------------------------------------------------------------
Reasons for change
The Committee understands that there is a significant tax
gap, or difference between the amount of tax owed by taxpayers
and the amount voluntarily paid to the IRS, that must be
addressed. The Committee also recognizes that information
reporting requirements generally improve taxpayer compliance.
However, the Committee is concerned that the expansion of the
information reporting requirements to owners of rental real
estate imposes a significant tax compliance burden on taxpayers
who are not otherwise engaged in business activity. The
Committee believes this burden is disproportionate as compared
with any resulting improvement in tax compliance and therefore
believes that these requirements should be repealed in their
entirety. The Committee will continue to explore other
potential solutions to the tax gap problem.
Explanation of provision
Under the provision, recipients of rental income from real
estate who are not otherwise considered to be engaged in a
trade or business of renting property are not subject to the
same information reporting requirements as taxpayers who are
considered to be engaged in a trade or business. As a result,
rental income recipients making payments of $600 or more to a
service provider (such as a plumber, painter, or accountant) in
the course of earning rental income are not required to provide
an information return (typically Form 1099-MISC) to the IRS and
to the service provider.
Effective date
The provision is effective for payments made after December
31, 2010.
C. INCREASE IN AMOUNT OF OVERPAYMENT OF HEALTH CARE CREDIT WHICH IS
SUBJECT TO RECAPTURE (SEC. 4 OF THE BILL AND SEC. 36B OF THE CODE)
Present law
Premium assistance credit
For taxable years ending after December 31, 2013, section
36B provides a refundable tax credit (the ``premium assistance
credit'') for eligible individuals and families who purchase
health insurance through an exchange.\27\ The premium
assistance credit, which is refundable and payable in advance
directly to the insurer, subsidizes the purchase of certain
health insurance plans through an exchange.
---------------------------------------------------------------------------
\27\Individuals enrolled in multistate plans, pursuant to section
1334 of the Patient Protection and Affordable Care Act, Pub. L. No.
111-148, are also eligible for the credit.
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To become entitled to an advance premium assistance credit
under section 36B, an eligible individual enrolls in a plan
offered through an exchange and reports his or her income to
the exchange.\28\ Based on the information provided to the
exchange, the individual receives an advance premium assistance
credit based on income and the Treasury pays the premium
assistance credit amount directly to the insurance plan in
which the individual is enrolled. The individual then pays to
the plan in which he or she is enrolled the dollar difference
between the premium assistance credit amount and the total
premium charged for the plan.\29\ Individuals who fail to pay
all or part of the remaining premium amount are given a
mandatory three-month grace period prior to an involuntary
termination of their participation in the plan. Eligibility for
the advance premium assistance credit is generally based on the
individual's income for the taxable year ending two years prior
to the enrollment period.
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\28\Sec. 1412 of the Patient Protection and Affordable Care Act,
Pub. L. No. 111-148, describes the program for advance payment of the
premium assistance credit.
\29\Although the credit is generally payable in advance directly to
the insurer, individuals may choose to purchase health insurance out-
of-pocket and claim the credit at the end of the taxable year. The
amount of the reduction in premium as a result of the assistance credit
is required to be included with each bill sent to the individual.
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The premium assistance credit is available for individuals
(single or joint filers) with household incomes between 100 and
400 percent of the Federal poverty level (``FPL'') for the
family size involved who do not receive health insurance
through an employer or a spouse's employer.\30\ Household
income is defined as the sum of: (1) the taxpayer's modified
adjusted gross income, plus (2) the aggregate modified adjusted
gross incomes of all other individuals taken into account in
determining that taxpayer's family size (but only if such
individuals are required to file a tax return for the taxable
year). Modified adjusted gross income is defined as adjusted
gross income increased by: (1) the amount (if any) normally
excluded by section 911 (the exclusion from gross income for
citizens or residents living abroad), plus (2) any tax-exempt
interest received or accrued during the tax year. To be
eligible for the premium assistance credit, taxpayers who are
married (within the meaning of section 7703) must file a joint
return. Individuals who are listed as dependents on a return
are ineligible for the premium assistance credit.
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\30\Individuals who are lawfully present in the United States but
are not eligible for Medicaid because of their immigration status are
treated as having a household income equal to 100 percent of FPL (and
thus eligible for the premium assistance credit) as long as their
household income does not actually exceed 100 percent of FPL.
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As described in Table 1 below, premium assistance credits
are available on a sliding scale basis for individuals and
families with household incomes between 100 and 400 percent of
FPL to help offset the cost of private health insurance
premiums. The premium assistance credit amount is determined
based on the percentage of income the cost of premiums
represents, rising from two percent of income for those at 100
percent of FPL for the family size involved to 9.5 percent of
income for those at 400 percent of FPL for the family size
involved. Beginning in 2014, the percentages of income are
indexed to the excess of premium growth over income growth for
the preceding calendar year. Beginning in 2018, if the
aggregate amount of premium assistance credits and cost-sharing
reductions\31\ exceeds 0.504 percent of the gross domestic
product for that year, the percentage of income is also
adjusted to reflect the excess (if any) of premium growth over
the rate of growth in the consumer price index for the
preceding calendar year. For purposes of calculating family
size, individuals who are in the country illegally are not
included.
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\31\As described in section 1402 of the Patient Protection and
Affordable Care Act, Pub. L. No. 111-148.
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Premium assistance credits, or any amounts that are
attributable to them, cannot be used to pay for abortions for
which federal funding is prohibited. Premium assistance credits
are not available for months in which an individual has a free
choice voucher under section 139D.
The low income premium credit phase-out
The premium assistance credit increases, on a sliding scale
in a linear manner, as shown in Table 1 below.
TABLE 1
------------------------------------------------------------------------
Household Income (expressed as a Initial Premium Final Premium
percent of FPL) (percentage) (percentage)
------------------------------------------------------------------------
100% up to 133%................... 2.0 2.0
133% up to 150%................... 3.0 4.0
150% up to 200%................... 4.0 6.3
200% up to 250%................... 6.3 8.05
250% up to 300%................... 8.05 9.5
300% up to 400%................... 9.5 9.5
------------------------------------------------------------------------
The premium assistance credit amount is tied to the cost of
the second lowest-cost silver plan (adjusted for age) which:
(1) is in the rating area where the individual resides, (2) is
offered through an exchange in the area in which the individual
resides, and (3) provides self-only coverage in the case of an
individual who purchases self-only coverage, or family coverage
in the case of any other individual. If the plan in which the
individual enrolls offers benefits in addition to essential
health benefits,\32\ even if the State in which the individual
resides requires such additional benefits, the portion of the
premium that is allocable to those additional benefits is
disregarded in determining the premium assistance credit
amount.\33\ Premium assistance credits may be used for any plan
purchased through an exchange, including bronze, silver, gold
and platinum level plans and, for those eligible,\34\
catastrophic plans.
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\32\As defined in section 1302(b) of the Patient Protection and
Affordable Care Act, Pub. L. No. 111-148.
\33\A similar rule applies to additional benefits that are offered
in multi-State plans, under section 1334 of the Patient Protection and
Affordable Care Act, Pub. L. No. 111-148.
\34\Those eligible to purchase catastrophic plans either must have
not reached the age of 30 before the beginning of the plan year, or
have certification of an affordability or hardship exemption from the
individual responsibility payment, as described in sections 5000A(e)(1)
and 5000A(e)(5), respectively.
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Minimum essential coverage and employer offer of health
insurance coverage
Generally, if an employee is offered minimum essential
coverage\35\ in the group market, including employer-provided
health insurance coverage, the individual is ineligible for the
premium assistance credit for health insurance purchased
through a State exchange.
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\35\As defined in section 5000A(f).
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If an employee is offered unaffordable coverage by his or
her employer or the plan's share of total allowed cost of
provided benefits is less than 60 percent of such costs, the
employee can be eligible for the premium assistance credit, but
only if the employee declines to enroll in the coverage and
satisfies the conditions for receiving a tax credit through an
exchange. Unaffordable is defined as coverage with a premium
required to be paid by the employee that is more than 9.5
percent of the employee's household income, based on self-only
coverage.\36\ The percentage of income that is considered
unaffordable is indexed in the same manner as the percentage of
income is indexed for purposes of determining eligibility for
the credit (as discussed above). The Secretary of the Treasury
is informed of the name and employer identification number of
every employer that has one or more employees receiving a
premium assistance credit.
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\36\The 9.5 percent amount is indexed for calendar years beginning
after 2014.
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Procedures for determining eligibility
In order to receive an advance payment of the premium
assistance credit, during the open enrollment period for
coverage during the next calendar year, exchange participants
must provide to the exchange certain information from their tax
return from two years prior. For example, if during the 2013
open enrollment period an individual applies for a premium
assistance credit for 2014, the individual must provide his or
her tax return from 2012. The IRS is authorized to disclose to
the Department of Health and Human Services limited tax return
information to verify a taxpayer's income based on the most
recent return information available to establish eligibility
for advance payments of the premium assistance credit. Existing
privacy and safeguard requirements apply. Individuals who do
not qualify for advance payments of the premium assistance
credit on the basis of their prior year income may apply for
the premium assistance credit based on specified changes in
circumstances. For individuals and families who did not file a
tax return in the prior tax year, the Secretary of Health and
Human Services is directed to establish alternative income
documentation that may be provided to determine income
eligibility for advance payments of the premium assistance
credit.
Reconciliation
If the premium assistance credit received through advance
payment exceeds the amount of premium assistance credit to
which the taxpayer is entitled for the taxable year, the
liability for the excess advance payment must be reflected on
the taxpayer's income tax return for the taxable year subject
to a limitation on the amount of such liability. For persons
with household income below 500 percent of FPL, the liability
for the excess payment for a taxable year is limited to a
specific dollar amount (the ``applicable dollar amount'') as
shown in Table 2 below (one half of the applicable dollar
amount shown in Table 2 for unmarried individuals who are not
surviving spouses or filing as heads of households).\37\
---------------------------------------------------------------------------
\37\Medicare and Medicaid Extenders Act of 2010, Pub. L. No. 111-
309, sec. 208. Prior to the Medicare and Medicaid Extenders Act of
2010, for persons whose household income was below 400 percent of the
FPL, the amount of the increase in tax was limited to $400 ($250 for
unmarried individuals who are not surviving spouses or filing as heads
of households).
TABLE 2
------------------------------------------------------------------------
Applicable Dollar
Household Income (expressed as a percent of FPL) Amount
------------------------------------------------------------------------
Less than 200%....................................... $600
At least 200% but less than 250%..................... 1,000
At least 250% but less than 300%..................... 1,500
At least 300% but less than 350%..................... 2,000
At least 350% but less than 400%..................... 2,500
At least 400% but less than 450%..................... 3,000
At least 450% but less than 500%..................... 3,500
------------------------------------------------------------------------
If the premium assistance credit for a taxable year
received through advance payment is less than the amount of the
credit to which the taxpayer is entitled for the year, the
shortfall in the credit is also reflected on the taxpayer's tax
return for the year.
The eligibility for and amount of the advance premium
assistance credit is generally determined in advance of the
coverage year, on the basis of household income and family size
shown on the taxpayer's return for the taxable year from two
years prior, and the monthly premiums for qualified health
plans in the individual market in which the taxpayer, spouse
and any dependent enroll in an exchange. Any advance premium
assistance credit is paid during the year for which coverage is
provided by the exchange. In the subsequent year, the amount of
advance premium assistance credit is required to be reconciled
with the allowable refundable premium assistance credit for the
year of coverage. Generally, this reconciliation is to be
accomplished on the tax return filed for the year of coverage,
based on that year's actual household income, family size, and
premiums.
Separately, the provision requires that the exchange, or
any person with whom it contracts to administer the insurance
program, must report to the Secretary with respect to any
taxpayer's participation in the health plan offered by the
Exchange. The information to be reported is information
necessary to determine whether a person has received excess
advance payments, identifying information about the taxpayer
(such as name, taxpayer identification number, months of
coverage) and any other person covered by that policy; the
level of coverage purchased by the taxpayer; the total premium
charged for the coverage, as well as the aggregate advance
payments credited to that taxpayer; and information provided to
the exchange for the purpose of establishing eligibility for
the program, including changes of circumstances of the taxpayer
since first purchasing the coverage. Finally, the party
submitting the report must provide a copy to the taxpayer whose
information is the subject of the report.
Reasons for change
The Committee believes that taxpayers with household income
of at least 200 percent of FPL but less than 400 percent of FPL
should be required to repay a portion of the overpayment of the
premium assistance credit received. The Committee believes that
it is equitable to increase the current repayment rates for
these individuals. Furthermore, Congress never intended for a
taxpayer with a household income that is 400 percent of FPL or
above to be eligible for premium assistance credits. Thus, for
any taxpayer with household income that is 400 percent of FPL
or above, the Committee believes the taxpayer should be
required to repay the full amount of any overpayment of the
advance premium assistance credit.
Explanation of provision
Under the provision, the applicable dollar amount with
respect to any excess advance payment of a taxpayer's allowable
premium assistance credit for a taxable year is revised as
shown in Table 3 below (one half of the applicable dollar
amount shown in Table 3 for unmarried individuals who are not
surviving spouses or filing as heads of households).
TABLE 3
------------------------------------------------------------------------
Household Income (expressed as a percent of poverty Applicable Dollar
line) Amount
------------------------------------------------------------------------
Less than 200%....................................... $600
At least 200% but less than 300%..................... 1,500
At least 300% but less than 400%..................... 2,500
------------------------------------------------------------------------
Persons with household incomes of 400 percent of FPL and
above must repay the full amount of the premium assistance
credit received through an advance payment.
Effective date
The provision applies to taxable years ending after
December 31, 2013.
III. Votes of the Committee
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of H.R. 705, ``Comprehensive 1099 Taxpayer
Protection and Repayment of Exchange Subsidy Overpayments Act
of 2011.''
MOTION TO REPORT RECOMMENDATIONS
The bill H.R. 705 was ordered favorably reported, as
amended, by a roll call vote of 21 yeas to 15 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp....................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Herger..................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Stark........ ........ X .........
Mr. Brady...................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Ryan....................... X ........ ......... Mr. Lewis........ ........ X .........
Mr. Nunes...................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Tiberi..................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Davis...................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Reichert................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Boustany................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Heller..................... X ........ ......... Mr. Blumenauer... ........ X .........
Mr. Roskam..................... X ........ ......... Mr. Kind......... ........ X .........
Mr. Gerlach.................... X ........ ......... Mr. Pascrell..... ........ X .........
Mr. Price...................... X ........ ......... Ms. Berkley...... ........ X .........
Mr. Buchanan................... X ........ ......... Mr. Crowley...... ........ X .........
Mr. Smith...................... X ........ .........
Mr. Schock..................... X ........ .........
Ms. Jenkins.................... X ........ .........
Mr. Paulsen.................... X ........ .........
Mr. Berg....................... X ........ .........
Ms. Black...................... X ........ .........
----------------------------------------------------------------------------------------------------------------
VOTES ON AMENDMENTS
The Crowley Amendment to the Chairman's Amendment in the
Nature of a Substitute to H.R. 705 failed to pass by a roll
call vote of 15 yeas to 21 nays (with a quorum being present).
The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp....................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Johnson.................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Brady...................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. Ryan....................... ........ X ......... Mr. Lewis........ X ........ .........
Mr. Nunes...................... ........ X ......... Mr. Neal......... X ........ .........
Mr. Tiberi..................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Reichert................... ........ X ......... Mr. Thompson..... X ........ .........
Mr. Boustany................... ........ X ......... Mr. Larson....... X ........ .........
Mr. Heller..................... ........ X ......... Mr. Blumenauer... X ........ .........
Mr. Roskam..................... ........ X ......... Mr. Kind......... X ........ .........
Mr. Gerlach.................... ........ X ......... Mr. Pascrell..... X ........ .........
Mr. Price...................... ........ X ......... Ms. Berkley...... X ........ .........
Mr. Buchanan................... ........ X ......... Mr. Crowley...... X ........ .........
Mr. Smith...................... ........ X .........
Mr. Schock..................... ........ X .........
Ms. Jenkins.................... ........ X .........
Mr. Paulsen.................... ........ X .........
Mr. Berg....................... ........ X .........
Ms. Black...................... ........ X .........
----------------------------------------------------------------------------------------------------------------
IV. Budget Effects of the Bill
A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the revenue provisions
of the bill, H.R. 705 as reported.
The bill, as reported, is estimated to have the following
effects on budget receipts for fiscal years 2011-2021:
B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX EXPENDITURES BUDGET
AUTHORITY
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority.
C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET OFFICE
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, February 18, 2011.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 705, the
Comprehensive 1099 Taxpayer Protection and Repayment of
Exchange Subsidy Overpayments Act of 2011.
If you wish further details on the estimate, we will be
pleased to provide them. The staff contacts are Kalyani
Parthasarathy (CBO) and Pamela Moomau (JCT).
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 705--Comprehensive 1099 Taxpayer Protection and Repayment of
Exchange Subsidy Overpayments Act of 2011
Summary: H.R. 705, the Comprehensive 1099 Taxpayer
Protection and Repayment of Exchange Subsidy Overpayments Act
of 2011, would repeal certain scheduled expansions in
information reporting requirements, and modify repayment
requirements for the advance premium assistance credits
available to certain individuals starting in 2014 for the
purchase of health insurance through health insurance
exchanges. The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 705 would reduce revenues over the
2011-2021 period by $19.7 billion, and reduce outlays by $19.9
billion. JCT therefore estimates that enacting the legislation
would reduce federal budget deficits by $166 million over the
2011-2021 period.
Pay-as-you-go procedures apply because enacting the
legislation would affect direct spending and revenues. JCT has
determined that the tax provisions of the bill contain no
intergovernmental mandates and one private-sector mandate as
defined in the Unfunded Mandates Reform Act (UMRA). Based on
information provided by JCT, the cost of the bill's private-
sector mandate would exceed the annual threshold established in
UMRA for private-sector mandates ($142 million in 2011,
adjusted annually for inflation) in each of the first five
years the mandate is in effect.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 705 is shown in the following table.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2011-2016 2011-2021
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Repeal Information Reporting on Rental Property Expense * -227 -239 -251 -261 -275 -285 -299 -314 -325 -335 -1,253 -2,811
Payments....................................................
Repeal 1099 Information Reporting Requirements for Certain 0 -263 -2,785 -1,995 -2,064 -2,135 -2,309 -2,413 -2,523 -2,636 -2,782 -9,242 -21,905
Other Payments..............................................
Modify Repayment of Certain Tax Credits...................... 0 0 0 107 287 435 601 782 870 915 995 829 4,990
----------------------------------------------------------------------------------------------------------------------------------
Total Estimated Changes in Revenues.......................... 0 -490 -3,024 -2,139 -2,038 -1,975 -1,993 -1,930 -1,967 -2,046 -2,122 -9,666 -19,726
On-budget................................................ 0 -490 -3,024 -2,050 -1,827 -1,604 -1,555 -1,462 -1,484 -1,545 -1,601 -8,995 -16,644
Off-budget............................................... 0 0 0 -89 -211 -371 -438 -468 -483 -501 -521 -671 -3,082
CHANGES IN DIRECT SPENDING
Modify Repayment of Certain Tax Credits:
Estimated Budget Authority............................... 0 0 0 -566 -1,314 -2,198 -2,661 -3,048 -3,207 -3,350 -3,547 -4,078 -19,892
Estimated Outlays........................................ 0 0 0 -566 -1,314 -2,198 -2,661 -3,048 -3,207 -3,350 -3,547 -4,078 -19,892
NET INCREASE OR DECREASE (-) IN THE DEFICIT FROM CHANGES IN REVENUES AND DIRECT SPENDING
Estimated Deficit Impact\a\.................................. 0 490 3,024 1,573 724 -223 -668 -1,118 -1,240 -1,304 -1,425 5,588 -166
On-budget................................................ 0 490 3,024 1,484 513 -594 -1,106 -1,586 -1,723 -1,805 -1,946 4,917 -3,248
Off-budget............................................... 0 0 0 89 211 371 438 468 483 501 521 671 3,082
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: * = change in revenue between -$500,000 and $500,000.
\a\Negative numbers indicate a reduction in the deficit; positive numbers indicate the opposite.
Basis of estimate: JCT estimated all of the effects of H.R.
705 on revenues and outlays.
H.R. 705 would repeal expansions in two 1099 information
reporting requirements currently scheduled to take effect in
2011 and 2012. Under current law, businesses that pay more than
$600 during a calendar year to an individual or unincorporated
business for services rendered, or for certain investment
income, are required to report that information to the
recipients and the Internal Revenue Service on form 1099.
Beginning in 2011, most landlords also became subject to those
reporting requirements under current law. H.R. 705 would repeal
that requirement, reducing revenues by an estimated $2.8
billion over the 2011-2021 period. In addition, under current
law, beginning in 2012, certain additional payments will become
subject to those reporting requirements, including payments
made to corporations and payments made for a broader range of
expenses. H.R. 705 would also repeal that expansion, reducing
revenues by an estimated $21.9 billion over the 2011-2021
period.
Starting in 2014, qualifying taxpayers will become eligible
to receive refundable health care premium assistance credits
based on income estimated from tax returns for prior years.
Taxpayers may later be required to repay some or all of the
credit, subject to certain limits based on income, if their
actual income proves to be higher than estimated. H.R. 705
would generally raise those limits, subjecting more taxpayers
to the repayment requirement. JCT estimates that the provision
will raise revenues by $5.0 billion and reduce outlays by $19.9
billion over the 2011-2021 period. The estimated effect on
revenues includes a reduction of $3.1 billion in off-budget
(Social Security) receipts over the 2011-2021 period.
Pay-As-You-Go Considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget reporting and enforcement
procedures for legislation affecting direct spending or
revenues. JCT estimates that enacting H.R. 705 would decrease
both direct spending and revenues, and would result in a net
increase in the deficit over the 2011-2016 period, but would
reduce the cumulative deficits over the 2011-2021 period. The
pay-as-you-go procedures apply only to on-budget effects.
The net changes in outlays and revenues that are subject to
pay-as-you-go procedures are shown in the following table.
CBO ESTIMATE OF PAY-AS-YOU-GO ACT EFFECTS FOR H.R. 705, THE COMPREHENSIVE 1099 TAXPAYER PROTECTION AND REPAYMENT OF EXCHANGE SUBSIDY OVERPAYMENTS ACT OF 2011, AS ORDERED REPORTED BY THE HOUSE
COMMITTEE ON WAYS AND MEANS ON FEBRUARY 17, 2011
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2011-2016 2011-2021
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET ON-BUDGET INCREASE OR DECREASE (-) IN THE DEFICIT
Statutory Pay-As-You-Go Impact................................. 0 490 3,024 1,484 513 -594 -1,106 -1,586 -1,723 -1,805 -1,946 4,917 -3,248
Memorandum:
Changes in Outlays......................................... 0 0 0 -566 -1,314 -2,198 -2,661 -3,048 -3,207 -3,350 -3,547 -4,078 -19,892
Changes in Revenues........................................ 0 -490 -3,024 -2,050 -1,827 -1,604 -1,555 -1,462 -1,484 -1,545 -1,601 -8,995 -16,644
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Intergovernmental and private-sector impact: JCT has
determined that the bill contains no intergovernmental mandates
and one private-sector mandate as defined in UMRA. That mandate
would change limits on the amounts taxpayers would be required
to repay for advance premium assistance tax credits associated
with health insurance exchanges, in the event of an
overpayment.
Based on information provided by JCT, the cost of the
mandate would exceed the annual threshold established in UMRA
for private-sector mandates ($142 million in 2011, adjusted
annually for inflation) in each of the first five years the
mandate is in effect.
Estimate prepared by: Kalyani Parthasarathy and Joshua
Shakin.
Estimate approved by: Frank Sammartino, Assistant Director
for Tax Analysis.
D. MACROECONOMIC IMPACT ANALYSIS
In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: The effects of the bill on economic activity are so small
as to be incalculable within the context of a model of the
aggregate economy.
V. Other Matters To Be Discussed Under the Rules of
the House
A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning the tax compliance burden on
taxpayers and the potential for waste, fraud, and abuse with
respect to exchange subsidies that the Committee concluded that
it is appropriate to report the bill, as amended, favorably to
the House of Representatives with the recommendation that the
bill do pass.
B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. INFORMATION RELATING TO UNFUNDED MANDATES
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (P.L. 104-4).
The Committee has determined that the bill contains one
private sector mandate: changes limitations on amounts required
for repayment on reconciliation of advance premium assistance
tax credits associated with health insurance exchange.
The Committee has determined that the bill does not impose
a Federal intergovernmental mandate on State, local, or tribal
governments.
D. APPLICABILITY OF HOUSE RULE XXI 5(B)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the provisions of the bill, and states that
the provisions of the bill do not involve any Federal income
tax rate increases within the meaning of the rule.
E. TAX COMPLEXITY ANALYSIS
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
staff of the Joint Committee on Taxation (in consultation with
the Internal Revenue Service and the Treasury Department) to
provide a tax complexity analysis. The complexity analysis is
required for all legislation reported by the Senate Committee
on Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
and has widespread applicability to individuals or small
businesses. The staff of the Joint Committee on Taxation has
identified only one such provision, which is discussed below.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, a summary description of that
provision is provided, along with an estimate of the number and
type of affected taxpayers, and a discussion regarding the
relevant complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and Treasury.
REPEAL OF EXPANDED INFORMATION REPORTING FOR PAYMENTS WITH RESPECT TO
PROPERTY OR PAYMENTS MADE TO CORPORATIONS
Summary description of provision
Under the provision, section 6041 is amended to delete
references to gross proceeds from property, a requirement that
payments to corporations be reported, and a grant of additional
regulatory authority. Accordingly, the changes to section 6041
enacted under section 9006 of the Patient Protection and
Affordable Care Act are repealed in their entirety.
As a result of the repeal, taxpayers are not required to
file an information return for all payments aggregating $600 or
more in a calendar year to any single corporation payee (except
a tax-exempt corporation). Second, the payments to be reported
do not include gross proceeds paid in consideration for
property.
Number of affected taxpayers
It is estimated that the provision will affect more than 10
percent of individual or small business tax returns.
Discussion
According to the Government Accountability Office, only
eight percent of approximately 50 million small businesses with
less than $10 million in assets filed miscellaneous information
return Form 1099-MISC.\38\ If greater reporting from small
businesses were available, it is possible that the IRS could
more readily identify areas of underreported income of the
payees. In general, the more payments to which information
reporting and/or withholding applies, the greater the
improvement in compliance.\39\ However, since the reporting
requirements were expanded, numerous critics have pointed to
disproportionate additional administrative burden on those
required to comply with the reporting obligations. Thus,
requiring information reporting for all payments aggregating
$600 or more in a calendar year to a corporation and for
payments for property may outweigh the enhanced taxpayer
compliance.
---------------------------------------------------------------------------
\38\Government Accountability Office, IRS Could Do More to Promote
Compliance by Third Parties with Miscellaneous Income Reporting
Requirements, GAO-09-238 (January 2009).
\39\See e.g., ``Tax Year 2001 Individual Income Tax Underreporting
Gap,'' at 2,
finding that information reporting is the primary differentiator in
compliance rates. See also, Joseph Bankman, ``Eight Truths About
Collecting Taxes from the Cash Economy,'' 117 Tax Notes 506, 511
(2007).
---------------------------------------------------------------------------
At the time the expanded provisions were under
consideration, a complexity analysis\40\ suggested that the
widespread use of computer technology to process and store
business information should minimize the burden associated with
generating and transmitting the information necessary to comply
with the provision, regardless of the extent to which the
taxpayer is currently subject to information reporting.
Although the additional burden of expanded reporting would have
depended on the extent to which taxpayers subject to the
provision already had adequate procedures and systems in place
to comply with existing information reporting requirements,\41\
uncertainty about the scope of the expansion, and the lack of
administrative guidance to date has made it difficult for
taxpayers to determine what steps would be necessary to comply
with the expanded reporting. Repeal of the additional
information reporting requirements avoids the need for small
businesses to develop new bookkeeping systems necessary in time
for implementation of the expanded reporting in 2012. In
addition, it relieves the IRS of the need to develop new forms
and outreach programs to educate the public about the changes
in reporting obligations.
---------------------------------------------------------------------------
\40\See, Senate Finance Committee, ``America's Healthy Future Act
of 2009,'' S. Rep 111-89, October 19, 2009) pp. 365-366.
\41\See e.g., Government Accountability Office, Costs and Uses of
Third-Party Information Returns, November 2007, GAO-08-266, available
at , wherein the GAO, based on
its case studies, found the compliance costs associated with filing
information returns to be ``relatively low.''
---------------------------------------------------------------------------
Comments from IRS and Treasury
No guidance would be required.
The relevant forms and instructions would not need to be
modified (Forms 1099, 1098, 3921, 3922, 5498, and W-2G), and
the instructions for certain other information returns and
publications would not need to be revised to reflect the
elimination of the exception for payments to corporations and
the exception for payments other than for services.
The IRS would not need to modify existing tax systems to
reflect this provision.
F. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND LIMITED TARIFF
BENEFITS
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
VI. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
PART IV--CREDITS AGAINST TAX
* * * * * * *
Subpart C--Refundable Credits
* * * * * * *
SEC. 36B. REFUNDABLE CREDIT FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN.
(a) * * *
* * * * * * *
(f) Reconciliation of credit and advance credit.--
(1) * * *
(2) Excess advance payments.--
(A) * * *
(B) Limitation on increase.--
[(i) In general.--In the case of a
taxpayer whose household income is less
than 500 percent of the poverty line
for the size of the family involved for
the taxable year, the amount of the
increase under subparagraph (A) shall
in no event exceed the applicable
dollar amount determined in accordance
with the following table (one-half of
such amount in the case of a taxpayer
whose tax is determined under section
1(c) for the taxable year):
------------------------------------------------------------------------
[If the household income (expressed
as a percent of poverty line) is: The applicable dollar amount is:
------------------------------------------------------------------------
Less than 200% $600
At least 200% but less than 250% $1,000
At least 250% but less than 300% $1,500
At least 300% but less than 350% $2,000
At least 350% but less than 400% $2,500
At least 400% but less than 450% $3,000
At least 450% but less than 500% $3,500]
------------------------------------------------------------------------
(i) In general.--In the case of a
taxpayer whose household income is less
than 400 percent of the poverty line
for the size of the family involved for
the taxable year, the amount of the
increase under subparagraph (A) shall
in no event exceed the applicable
dollar amount determined in accordance
with the following table (one-half of
such amount in the case of a taxpayer
whose tax is determined under section
1(c) for the taxable year):
----------------------------------------------------------------------------------------------------------------
If the household income (expressed as a
percent of poverty line) is: The applicable dollar amount is:
----------------------------------------------------------------------------------------------------------------
Less than 200%............................... $600
At least 200% but less than 300%............. $1,500
At least 300% but less than 400%............. $2,500.
----------------------------------------------------------------------------------------------------------------
* * * * * * *
Subtitle F--Procedure and Administration
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter A--Returns and Records
* * * * * * *
PART III--INFORMATION RETURNS
* * * * * * *
Subpart B--Information Concerning Transactions With Other Persons
SEC. 6041. INFORMATION AT SOURCE.
(a) Payments of $600 or More.--All persons engaged in a
trade or business and making payment in the course of such
trade or business to another person, of rent, salaries, wages,
[amounts in consideration for property,] premiums, annuities,
compensations, remunerations, emoluments, or other [gross
proceeds,] fixed or determinable gains, profits, and income
(other than payments to which section 6042(a)(1), 6044(a)(1),
6047(e), 6049(a), or 6050N(a) applies, and other than payments
with respect to which a statement is required under the
authority of section 6042(a)(2), 6044(a)(2), or 6045), or $600
or more in any taxable year, or, in the case of such payments
made by the United States, the officers or employees of the
United States having information as to such payments and
required to make returns in regard thereto by the regulations
hereinafter provided for, shall render a true and accurate
return to the Secretary, under such regulations and in such
form and manner and to such extent as may be prescribed by the
Secretary, setting forth the amount of such [gross proceeds,]
gains, profits, and income, and the name and address of the
recipient of such payment.
* * * * * * *
[(h) Treatment of Rental Property Expense Payments.--
[(1) In general.--Solely for purposes of subsection
(a) and except as provided in paragraph (2), a person
receiving rental income from real estate shall be
considered to be engaged in a trade or business of
renting property.
[(2) Exceptions.--Paragraph (1) shall not apply
to--
[(A) any individual, including any
individual who is an active member of the
uniformed services or an employee of the
intelligence community (as defined in section
121(d)(9)(C)(iv)), if substantially all rental
income is derived from renting the principal
residence (within the meaning of section 121)
of such individual on a temporary basis,
[(B) any individual who receives rental
income of not more than the minimal amount, as
determined under regulations prescribed by the
Secretary, and
[(C) any other individual for whom the
requirements of this section would cause
hardship, as determined under regulations
prescribed by the Secretary.
[(i) Application to Corporations.--Notwithstanding any
regulation prescribed by the Secretary before the date of the
enactment of this subsection, for purposes of this section the
term ``person'' includes any corporation that is not an
organization exempt from tax under section 501(a).
[(j) Regulations.--The Secretary may prescribe such
regulations and other guidance as may be appropriate or
necessary to carry out the purposes of this section, including
rules to prevent duplicative reporting of transactions]
* * * * * * *
VII. Dissenting Views on H.R. 705, The Comprehensive 1099 Taxpayer
Protection and Repayment of Exchange Subsidy Overpayments Act of 2011
We want the record to show clearly that the 15 minority
members of the Ways and Means Committee voted in support of
H.R. 4, legislation to repeal the 1099 tax reporting
requirement enacted as part of health reform. However, we were
unified in opposition to the second bill, H.R. 705, the
Comprehensive 1099 Taxpayer Protection and Repayment of
Exchange Subsidy Overpayments Act of 2011. We opposed H.R. 705
because it would raise taxes on the middle class.
According to the Joint Committee on Taxation, repealing the
1099 provision has a cost of $24.9 billion over 10 years.
Democrats are clearly on record supporting repeal of 1099 and
paying for it as well.
In the 111th Congress, all but one House Democrat supported
passage of H.R. 5982, a bill to repeal the 1099 provision that
was offset by closing a number of foreign tax credit loopholes
to ship jobs overseas and other loopholes that promote tax
avoidance. That bill failed under suspension of the rules in
which two-thirds of the House must support the legislation. It
failed because of almost uniform opposition by House
Republicans--even though the bill was endorsed by and subject
to a key vote by the National Federation of Independent
Businesses. Only two Republicans supported the legislation--one
of whom is no longer in Congress.
Now, in the 112th Congress, our Republican colleagues on
Ways and Means have chosen to pursue a financing mechanism for
1099 repeal that forces the middle class to shoulder the
expense of this provision for small businesses. It does this by
eliminating a protection for individuals and families who
obtain tax credits for health insurance, a protection that
prevents substantial tax increases that result from unexpected
changes in income or family status. As the consumer advocacy
organization Families USA puts it, ``House Republicans have
introduced a proposal that would undermine protections in the
Affordable Care Act for middle-class families and put the
financial security of these families at risk.''
Starting in 2014, the health reform law ensures health care
is affordable for working families by making tax credits
available for the purchase of health insurance for families
with incomes below 400 percent of poverty. The amount of the
tax credit for which people are eligible is based on annual
income for the year the credits are received. But, because
people will need help paying their insurance premiums
throughout the course of the year, the law provides for advance
payments of the credits. These tax credits never go to the
families--they are paid directly to health insurers to offset
the cost of people's health insurance premiums. In order to
make advanced tax credit payments, the law bases the premiums
on the taxpayer's most recent tax filing. At the time when
taxpayers file their annual return, the advance payments are
reconciled with their actual year income. If the advance
payments are greater than the final tax credit, the taxpayer
must pay the difference in the form of higher taxes. This
process is often called a ``true up.'' Republicans charge that
the true-up policy captures overpayments that are due to fraud.
This is not true--the true-up policy in fact relies on
taxpayers truthfully reporting their actual income for the
year. If taxpayers do not report extra income on their return
for the year, then the true-up policy would not apply. Section
1411(h) of the Affordable Care Act contains protections that
guard against fraudulent overpayments and permits recoupment of
such overpayments. This provision of the law permits the
assessment of a penalty of up to $250,000 in the case of the
submission of false or fraudulent information in order to
obtain health tax credits.
This true-up process will not be infrequent. The incomes of
hourly-wage workers often fluctuate from week to week and are
difficult to predict. Dependents may leave or return home at
any point in the year. People may change jobs midyear, get an
end-of-year bonus, or go from part-time employment to
employment on a full-time basis. Any of these changes would
affect their eligibility for premium tax credits.
However, the law also recognizes that this true up process
can put families in a difficult financial situation. At these
income levels, it is unlikely that people have the resources to
pay what could be thousands of dollars of unanticipated taxes.
So, the law protects them by capping tax increases.
In the original law, the cap was a flat $250 for an
individual and $600 for a family below 400% of the federal
poverty level. This policy created a large cliff for people
whose incomes increase to 400 percent of poverty because they
would suddenly be liable for 100 percent of any tax credits
received.
Last December, in a bipartisan vote of 409-2, the Congress
voted to alter the true-up policy. The President signed this
policy into law. It converted the flat cap to a graduated
income approach that protects those with lower incomes, but
also mitigated the cliff that people faced at 400 percent of
poverty by phasing the caps out up to 500 percent of poverty
($110,000 for a family of four). That was a trade-off Democrats
were willing to make. The policy under current law (as modified
by the December legislation) is as follows:
------------------------------------------------------------------------
Repayment for an Repayment for a
Percent of Income individual family
------------------------------------------------------------------------
<200% FPL....................... $300 $600
200%-<250%...................... 500 750
250%-<300%...................... 750 1,500
300%-<350%...................... 1,000 2,000
350%-<400%...................... 1,250 2,500
400%-<450%...................... 1,500 3,000
450%-<500%...................... 1,750 3,500
------------------------------------------------------------------------
In H.R. 705, the Ways and Means Republicans are reversing
the December policy and reinstating the original cliff to
generate more taxes from middle-class families. They are
collapsing the income categories so that many people under 400
percent of poverty will owe $500 in higher taxes, and they are
reinstating the cliff at 400 percent of poverty. In other
words, H.R. 705 eliminates the protections for families with
incomes between 400 and 500 percent of poverty ($88,000 to
$110,000 for a family of four). If a family's actual income was
even one dollar above 400 percent of poverty, they could have
to pay the IRS the entire value of their health insurance
premium tax credit--which could be as high as nearly $12,000 in
2014.
Middle-income Americans will be forced to pay higher taxes
under this proposal. The financial security of these families
could be put in jeopardy when they are forced to pay the IRS
the full value of their health premium tax credits simply
because they accepted a better job, picked up extra shifts,
received a holiday bonus, or saw a reduction in household size,
such as a drop due to a death in the family or a child reaching
adulthood.
We would also like to note that each of our colleagues on
the other side of the aisle signed the Americans for Tax
Reform's ``Taxpayer Protection Pledge'' committing to oppose
any and all tax increases. Their party-line vote in support of
this middle-income tax increase violates that pledge.
According to the Joint Committee on Taxation, this
Republican proposal will increase the number of uninsured by
266,000. Over a quarter of a million individuals will no longer
receive health insurance out of fear that they will be forced
to pay substantial amounts to the IRS at tax-time.
The Republican proposal will also disproportionally affect
families who live in parts of the country with higher health
insurance premiums due to circumstances in the local market.
While families in both high and low-cost insurance areas will
be protected from having to pay more than 9.5 percent of their
income for health coverage, families in high-cost insurance
areas will receive tax credits in higher dollar amounts than
families in low-cost areas because their coverage is more
expensive, and these higher dollar amounts are what would be
required to be fully repaid.
If our Republican colleagues wonder why we refuse to return
to the flawed true-up policy, the answer is simple: There are
25 billion reasons. With a score from the Joint Committee on
Taxation of $25 billion, this bill gouges mostly middle-income
American families by adding $25 billion in new taxes simply
because they were doing the right thing and providing health
insurance for their families.
Another aspect of this bill that should be the topic of
discussion on both sides of the aisle is the growing tax gap.
In January of this year, the Committee received testimony from
Taxpayer Advocate Nina Olson that,
``Noncompliance cheats honest taxpayers, who must pay
more to make up the difference. According to the IRS's
most recent comprehensive estimate, the net tax gap
stood at $290 billion in 2001, when 132 million tax
returns were filed. This means that each taxpayer was
effectively paying a `surtax' of some $2,200 to
subsidize noncompliance by others.''
While we remain concerned about the burdens that may result
from the 1099 reporting requirements that would go into effect
in 2012, it is important to note that the revenues that would
have come in to the Treasury as a result of those provisions
were not additional taxes, as many have attempted to
characterize them. This is increased revenue associated with
encouraging greater compliance with our tax laws. While efforts
to collect these dollars should not present burdensome new
requirements on job-driving businesses, the Committee must work
in a bipartisan fashion in order to ensure that the tax gap
does not transfer tax liabilities to honest taxpayers in order
to subsidize noncompliance to others.
In closing, we reiterate our longstanding support for
repealing the 1099 provision. However we refuse to do so on the
backs of working Americans. We urge our colleagues on the other
side of the aisle to seek a new financing mechanism for the
1099 repeal. We will gladly work with them to find an
acceptable revenue source. This one is unacceptable.
Sander M. Levin.
Charles B. Rangel.
Pete Stark.
Jim McDermott.
John Lewis.
Richard Neal.
Xavier Becerra.
Mike Thompson.
John Larson.
Earl Blumenauer.
Ron Kind.
Bill Pascrell.
Shelley Berkley.
Joe Crowley.