NAIFA GovWatch

Congress Enacts Small Business Bill into Law

Issue: Small Business Taxes

Date: September 24, 2010

Action Taken: On September 23, after months of debate, the House passed the Senate-approved H.R.5297, a small business lending bill that also contains a $12 billion package of small business tax breaks. The House vote was 237 to 187. The Senate vote (on Sept. 16) was 61 to 38. The bill does not contain any change to current law’s requirement that businesses report, via Form 1099, expenditures for goods and services totaling $600 or more, per vendor. The debate leading up to passage of H.R.5297 included two amendments—one to repeal and one to modify—the highly controversial reporting requirement (which was enacted into law earlier this year as part of the health reform law), but Senators failed to muster sufficient votes to pass either amendment. Further attempts to repeal or modify the 1099 reporting requirement are expected later this year.

Among the provisions in the bill of most interest to NAIFA members are:

A one-year rule (for 2010) that allows self-employed individuals to exclude the cost of their health insurance (individual and family coverage) when calculating the amount of compensation on which they must pay Social Security and Medicare taxes
A partial annuitization rule that makes it clear that annuity payments made from partial annuitizations are subject to current law’s section 72 exclusion ratio rules
A rule that allows taxpayers to convert certain retirement savings amounts to Roth 401(k) accounts, as well as to Roth IRAs. If done this year, these conversions qualify for a favorable tax rule that allows for income recognition (and tax liability) to be spread over two years (2010 and 2011).
Creation of Roth 457 plans—Roth treatment allows for after-tax contributions to these retirement savings vehicles, and tax-free post-retirement distributions. Current law already allows for Roth IRAs, Roth 401(k), and Roth 403(b) accounts.

The bill also extends 50 percent bonus depreciation for one year, allows for the exclusion of gains from the sale of small business stock acquired after the bill’s date of enactment and held for more than five years, increases section 179 expensing limits for 2010 and 2011, and allows for a five-year carry-back of general business credits for small businesses.

H.R.5297 sets up a $30 billion pool which healthy small community banks (those with less than $10 billion in assets) can access. This loan guarantee fund is said to be enough to allow the small community banks that access it to leverage up to $300 billion in new lending to small businesses.

Next Steps: President Obama is expected to sign the small business lending bill into law within the next few days. NAIFA will continue to work on relief from the burdensome 1099 reporting requirement.

NAIFA Staff Contact: Mike Kerley, Senior Vice President – Federal Government Relations, at mkerley@naifa.org; or Dani Kehoe, of counsel, at danikehoe@gmail.com.

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