The IRS has expanded its Voluntary Classification Settlement Program (VCSP), which allows taxpayers to achieve legal certainty by reclassifying their workers as employees for future tax periods. Several eligibility requirements have been changed to allow more employers, particularly larger ones, to apply for the VCSP.
Almost 1,000 employers have applied for the program, which provides partial relief from federal payroll taxes for eligible employers who are treating their workers, or a class or group of workers, as independent contractors and want to treat them as employees. Businesses, tax-exempt organizations, and government entities can apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees. Under the program as expanded, employers under IRS audit (other than an employment tax audit) can qualify for the VCSP. Also, employers allowed into the program will no longer be subject to a special six-year statute of limitations, instead of the usual three-year limitation period that normally applies to payroll taxes.
Until June 30, 2013, the IRS is waiving the eligibility requirement that an employer must file Forms 1099 with respect to workers they are seeking to reclassify for the past three years. To be eligible for the VCSP, an employer must currently be treating workers as non-employees and consistently have treated them as such in the past, and not be under audit on a payroll tax issue. Further, the employer cannot currently be under audit by the Department of Labor or a state agency concerning worker classification, or be challenging worker classification in court. Employers accepted into the program will generally pay an amount equal to slightly over 1 percent of the wages paid to the reclassified workers for the past year.
Originally published 2013 Wolters Kluwer, all rights reserved.