IRS Announces New Voluntary Worker Classification Settlement Program (VCSP)

This is part of a larger “Fresh Start” initiative at the IRS to help taxpayers and businesses address their tax responsibilities for which employers face no deadline.

“This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations.”

The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

To be eligible, an applicant must:

> Consistently have treated the workers in the past as nonemployees,

> Have filed all required Forms 1099 for the workers for the previous three years

> Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

A taxpayer participating in the VCSP will agree to prospectively treat the class or classes of workers as employees for future tax periods. In exchange, the taxpayer:

> Will pay 10 percent of the employment tax liability (just over one percent of the wages paid ) that may have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509(a) of the Internal Revenue Code.

> Will not be liable for any interest and penalties on the amount; and

> Will not be subject to an employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years.

Shulman and Secretary of Labor Hilda Solis signed an agreement earlier this week to improve their coordination on preventing businesses from misclassifying employees as independent contractors. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed in the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as non-employees or independent contractors, and now want to correctly treat these workers as employees.

If you believe that you are about to be audited or investigated for your worker classifications – perhaps because a former worker or a competitor is about to blow the whistle or he already made a claim for unemployment benefits or workman’s comp, please call us to find out if you should be participating in this amnesty program

Manendra Kothari - About Author:
Manendra Kothari, CPA
127 S. Roselle Rd Ste # 200 Schaumburg, IL 60193
Phone: 847.524.0001
Email: MKothari@SKTaxes.com
Web: www.Indiancpa.US

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