Misclassified Workers
New IRS Program for Misclassified Workers
Many taxpayers may currently be misclassifying workers performing services for their business as independent contractors. For this reason, a new program has been launched by the IRS to increase tax compliance related to worker classification issues. The Voluntary Classification Settlement Program (VCSP) enables employers to reclassify independent contract workers as employees with a minimal amount of complication and costs.
To participate in the new program, all applicants must meet the following requirements:
- must have consistently treated the workers to be reclassified as non-employees
- must have filed all required Forms 1099s for the previous 3 years
- must not currently be under audit concerning the classification of the workers by the IRS, Department of Labor, or any state government agency.
If participating in the VCSP, taxpayers agree to the following terms:
- agree to treat the former independent contractors as employees for future tax periods
- pay 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year (this new program only relates to federal payroll taxes)
- no interest and penalties will be due on the prior tax liability
- employers will not be audited for employment taxes for reclassified workers under VCSP for prior years
- Note: for the first 3 years in the program, employers will be subject to a special 6 year statute of limitations (generally, the statute of limitation for payroll related taxes is 3 years)
To participate in the VSCP, an application (Form 8952) must be submitted by the taxpayer. In addition, the taxpayer should provide a valid Power of Attorney Form 2848 for their authorized representative. The IRS will then contact the taxpayer or authorized representative to complete the process after reviewing the application and verifying the eligibility of the taxpayer in the VSCP.
Contact us if you are interested in participating in the new Voluntary Classification Settlement Program. Click here if interested in further information regarding the classification of workers.