The tax-reporting measure would have required businesses to file 1099 forms with the Internal Revenue Service showing payments of $600 or more to vendors. The goal was to reduce tax evasion, but businesses said it would have added to the time and cost of tax preparation.
Republicans and Democrats had agreed that repealing the tax-reporting requirement was a good idea but had differed over how to compensate for it. The approved repeal would make up for taxes lost to vendor evasion by requiring low- and middle-income Americans who receive a tax credit for buying their own health insurance to repay the credit if their income winds up being too high. The repayment obligation would show up as a tax charge during the tax filing season.
"How would most middle-class families deal with a tax bill of $10,000 or more just because their income may have increased $1 above the eligibility limits during the year they got accepted?" said Sen. Bob Menendez (D., N.J.), who tried and failed to repeal the mechanism for dealing with the cost of the repeal.
The Obama administration is sensitive to criticisms of the health-care law, its signature policy achievement, and made clear it would continue to reach out to critics.
"We are open to working with Republicans and Democrats to improve the health reform law and we are pleased Congress has acted to correct a flaw that placed an unnecessary bookkeeping burden on small businesses," White House spokesman Jay Carney said in a statement.
The National Taxpayers Union, a group that focuses on cutting taxes, has estimated that the repeal would cost $19.7 billion. The group estimated that the losses would be offset by taking back $19.9 billion in overpayments.