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IRS - Voluntary Classification Settlement Program

The IRS has developed a new program called the Voluntary Classification Settlement Program (VCSP). The program is designed to permit taxpayers to voluntarily reclassify certain workers as employees for federal employment tax purposes. Whether a worker is performing services as an employee or as an independent contractor depends on the various facts and circumstances of the arrangement and comparing those to the IRS's rules and regulations. 

Under the new program, employers are allowed the opportunity to get into compliance by making a minimal payment to cover their past payroll tax obligations. The employers will be required to pay only 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year and will not be liable for any interest and penalties on the liability. Previously, a taxpayer would incur significant amounts of retroactive taxes, penalties and interest when reclassifying a worker that had been paid as an independent contractor to an employee.

In order to be eligible for this program an applicant must have consistently treated the workers in the past as nonemployees, have filed all required Forms 1099 for the workers for the previous three years, and not currently be under audit by the IRS, Dept of Labor, or a state agency concerning the classification of these workers. Participants in the program must also agree to prospectively treat the class of workers as employees for future tax periods. Eligible taxpayers who would like to participate in this program would need complete an application (Form 8952) which can be found on the IRS website. 

• If you would like to discuss these topics in detail, please contact Darin G. Schindler, CPA, CSEP, CR.FA.
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