Under the IRS’ Voluntary Classification Settlement Program (VCSP), you may change workers’ status from independent contractors to employees for future years. One major concern with VCSP has been potential liability for reclassified workers under the Fair Labor Standards Act or state wage payment laws.
The IRS, in a new Frequently Asked Questions (FAQ) document, stresses that it will not share information about VCSP participants with the U.S. Department of Labor (DOL) or state agencies. Caution: While that may be reassuring, reclassified employees are still free to bring private lawsuits.
Read the VCSP FAQ at http://tinyurl.com/VCSP-FAQ.
VCSP participants are liable for just over 1% of the wages paid to reclassified workers for the past year. In addition, the IRS won’t assess penalties or interest, or open audits related to those workers for prior years. To participate, you must file Form 8952 at least 60 days before you want to change workers’ status and meet these four criteria:
- You must consistently have treated affected workers as independent contractors.
- You must have filed Forms 1099-MISC for those workers for the previous three years.
- You must not currently be under audit by the IRS, the DOL or a state agency.
- If you have undergone an IRS or DOL worker classification audit, you must be complying with the results of the audit.
The IRS noted that you may participate in VCSP even if you have received a Form SS-8 inquiry regarding a particular worker. The FAQs also clear up the following issues:
- You remain eligible for VCSP if you filed Forms 1099-MISC within six months of their due date, including filing extensions.
- You will not become audit bait if the IRS rejects your VCSP application.
- By signing a VCSP closing agreement, which applies to future years only, you aren’t admitting liability or wrongdoing for prior years. Likewise, the IRS isn’t making any representations regarding workers’ status for those prior years.