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What are the details on the IRS’ new ‘classification amnesty’ program?

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in Employment Law,Human Resources

Q. We’ve heard the IRS recently announced a new program for employers to reclassify their workers. Can you tell us about it?

A. With the renewed attention given to employee misclassification, the IRS established a new program called the Voluntary Classification Settlement Program (VCSP). It started in September 2011.

The program is aimed at the misclassification of workers as nonemployees or independent contractors, rather than employees. It may be an attractive option for em­­ployers that have classified workers as independent contractors, but are not entirely certain about their status.

Participating employers agree to reclassify some or all of their workers and prospectively treat those workers as employees in exchange for reducing their federal payroll taxes they may have owed for past misclassifications.  

How does the VCSP program work?

Q. What is the agreement between the IRS and employers that qualify?

A.The employer agrees to reclassify the workers and prospectively treat them as employees in the future.

In exchange, the employer will pay 10% of the em­­ploy­­ment tax liability that may have been due on the compensation paid to the reclassified workers for the previous tax year, calculated under the reduced rates of the Internal Revenue Code section 3509(a).  

The employer is not responsible for paying interest or penalties and will not be subject to audits for the reclassified workers for prior years.

In addition, the employer must agree to extend the statute of limitations for worker classification audits from three years to six years during the first three years in the program.  

How do we know if we’re qualified for VCSP?

Q. What are the stipulations for an employer to be considered for the program?

A. To be eligible for the program, an employer must:

  1. Consistently have treated the workers in the past as nonemployees
  2. Have filed all required Forms 1099 for the workers for the previous three years
  3. Not currently be under audit by the IRS
  4. Not currently be under audit by the Department of Labor or a state agency concerning the classification of the workers.

How do we sign up?

Q. How do employers apply for the program? Is more information available online?

A. To apply for the program, employers must file the Form 8952 (Application for Voluntary Classi­fi­ca­tion Settlement Program) which is available on the IRS website. Download a copy: www.irs.gov/pub/irs-pdf/f8952.pdf.

Employers must complete the form at least 60 days before they want to begin reclassifying their workers and treating them as employees. The IRS will verify the employer’s eligibility and contact employers to inform them if they have been accepted into the program.

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