The Internal Revenue Service announced a new program today that will allow employers who have been misclassifying workers as independent contractors rather than as employees to get into compliance with a minimum of fuss and expense.
The new program is called the “Voluntary Classification Settlement Program.”
In effect, it will allow for certain employers to reclassify their workers as employees without paying all the past due payroll taxes and without being audited.
Here are the requirements for an employer to take part in this new program:
1. Have consistently treated the workers to be reclassified as nonemployees.
2. Have filed all required Form 1099s for the previous 3 years.
3. Not currently be under audit by the IRS, the Department of Labor, or a state agency with respect to worker classification.
In order to apply for participation in the Voluntary Classification Settlement Program, the employer will need to file a Form 8952 at least 60 days prior to the date that it would like to have the workers reclassified as employees.
Once an employer is accepted into the program, it will have to pay 10% of the employment tax liability that it would have had with respect to its reclassified workers for the past year. In essence, this amount would be a little over 1% of wages paid to the reclassified workers over the past year.
Benefits from being admitted to participation in the program include the following:
1. No interest due from the employer.
2. No penalties due from the employer.
3. No audits of the employer for previous years for payroll taxes.
An employer, in addition to making the required payment, will have to agree to having a 6-year statute of limitation for the first 3 years in the program rather than the normal 3-year statute of limitations.
For employers who have worried about how their workers have been classified and have lost sleep over unpaid payroll taxes, this newly announced Voluntary Classification Settlement Program should be a welcome relief.