While the new health care bill affects the way small businesses maintain and administer medical plans, one small provision in the bill has nearly been overlooked in the hubbub of activity. Beginning in 2012, companies must report to the IRS payments of more than $600 a year to any vendor, including individuals and corporations.

Where’s the surprise? Well, we’re talking about any vendor, from overnight delivery services to hotels and even equipment providers.

Here’s the situation: To ensure that workers pay the taxes that a business would normally withhold if the workers were W-2 employees, a business must file 1099-MISC forms for freelancers and other service providers who aren’t incorporated. Under current law, businesses must submit 1099 forms for payments made above $600 for rent, interest, dividends and non-employee services (when these payments are made to entities other than corporations). In addition, payments for merchandise are not required to be reported.

Beginning in 2012, the three-paragraph section in the bill known as the Patient Protection and Affordable Care Act requires businesses to issue 1099s to include payments for goods and services.

In a time when Congress is looking for ways to offset rising costs, the provision was created to finance the actual cost of the bill. It is predicted that this requirement will generate more than $2 billion each year in taxes on income that currently goes unreported by contractors and small businesses.

Small businesses might suffer the most based on lack of staff to handle the additional paperwork. Essentially, companies must get tax ID numbers and file forms for nearly all suppliers and also track expenses to determine which vendors need 1099s. Although all companies, regardless of size, location or any other attribute, should track this information on a regular basis, it nonetheless creates a noticeable additional level of detail. Small businesses, in particular, could be forced to focus more on operations and processes than bottom-line growth.

Experts also believe the new requirement will force small businesses to rely on larger vendors that because of their infrastructure will complete the paperwork for their customers. What this means is that some companies will bypass smaller providers in order to work with vendors that will assist their customers and help them save time and money.

Of course, the provision brings with it a huge number of naysayers who want the 1099 requirement to remain as it is today.

During 2011, National Taxpayer Advocate Nina Olson says her office will study the impact of the requirement. Depending on the results, the office might propose modifications to make the requirement less of a burden.

Rep. Dan Lungren (R-Calif), introduced the Small Business Paperwork Mandate Elimination Act, a bill pending before the Ways and Means Committee. He claims the requirement imposes extra costs on business owners who pay their taxes to help the government catch those who don’t. “This paperwork burden is only justifiable if you assume that nearly all businesses are cheaters,” he says.

However, if the provision is not repealed, companies of all sizes will want to consult with their CPA and financial adviser to get ahead of the curve by implementing systems that automate the 1099 process as much as possible.

Best of luck in September!