Last week the Internal Revenue Service launched a new program that will enable many employers to resolve past worker classification issues. This new program will allow employers the opportunity to get into compliance by making a payment covering past payroll tax obligations.
This is part of a larger “Fresh Start” initiative the IRS has implemented in an attempt to help taxpayers and businesses address their tax responsibilities.
The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers. 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
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. Full details are available from the IRS in Announcement 2011-64.
For help understanding the proper treatment of your workers contact Hone Maxwell LLP today.